View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by OpenGrey Repository Studies in licit and illicit markets for digital entertainment goods The thesis submitted in partial fulfilment of the requirements for the award of the degree of Doctor of Philosophy of the University of Portsmouth Joe Cox May 2012 Word Count: 68,597 Abstract The widespread proliferation of digital communication has revolutionised the way in which traditional entertainment media are distributed and consumed. This thesis investigates a range of aspects of these markets, beginning with a detailed analysis of the video games industry, which has emerged from relative obscurity and moved toward the cultural mainstream as a consequence of the digital revolution. The thesis presents an analysis of the market for video games from both the demand and supply side, investigating factors that drive the prices and unit sales of video gaming hardware and software. In doing so, evidence is presented on significant predictors of ‘blockbuster’ titles, the existence of first-mover advantages and the extent to which international markets conform to theoretical expectations relating to purchasing power parity (PPP) and cultural convergence. The thesis also goes on to explore the darker side of the digital revolution by examining the economics of illegal file sharing. Later chapters present empirical analyses of survey data with the aim of understanding motivations to participate in the practice to varying extents. The results are unique in the sense that they differentiate between a range of behaviours, such as seeding and leeching, as well as the illegal consumption of music and movie content. The related academic literature has until now assumed these practices to be homogenous. A number of key findings are presented in the various studies comprising this thesis. In relation to video gaming, results suggest that the price of video gaming software can be influenced through the strategic use of both ‘versioning’ (second-degree price discrimination) and planned obsolescence, while the quality of the game play experience is found to be a consistently significant determinant of both market value and the probability of a title becoming a i ‘blockbuster’. On the supply side, evidence is also presented that there are not first-mover advantages in the market for gaming hardware and that the second-move tends to associate positively and significantly with the installed user base of a console. Evidence is also presented that video games hardware prices conform to PPP only within broad geographic regions, one possible interpretation of which being that shared leisure pursuits such as video gaming are contributing to cultural convergence. In terms of illegal file sharing, evidence is found to suggest that the strongest incentives to participate in the activity are financial and social in nature, while the most significant disincentives are moral judgements and the poor perceived quality of pirated materials relative to legitimate substitutes. The imposition of harsher legal penalties is not found to consistently present a disincentive to participate. It is also suggested that a major incentive to participate in illegal file sharing access to a wider range of content and/or to consume materials in advance of worldwide release. More prolific file-sharers also tend to express the greatest willingness to pay for alternative forms of legal distribution, such as services that allow unlimited legal downloading for a fixed monthly fee. As these incentives are measured and differentiated according to the form and intensity of participation, the findings of this thesis constitute a unique contribution to the literature and can help inform effective policy making in this area. ii Contents Chapter 1: Introduction .............................................................................................................................................. 1 1.1: Aims and objectives ........................................................................................................................................... 1 1.2: A brief introduction to the market for video games ........................................................................................... 3 1.3: A brief introduction to illegal file sharing .......................................................................................................... 5 1.4: Research approach ........................................................................................................................................... 15 Chapter 2: Literature review .................................................................................................................................... 25 2.1: Literature related to studies in licit digital entertainment markets ................................................................... 25 2.2: Literature relating to illicit digital entertainment markets ................................................................................ 36 Chapter 3: The economics of video gaming ............................................................................................................. 42 3.1: A brief history of video gaming ....................................................................................................................... 42 3.2: Producers and the supply side .......................................................................................................................... 55 3.3: Consumers and the demand side ...................................................................................................................... 59 3.4: Video game genres ........................................................................................................................................... 67 3.5: Online gaming and fantasy ............................................................................................................................... 69 3.6: Conclusions ...................................................................................................................................................... 75 Chapter 4: The effect of planned obsolescence and versioning on the price of video games .............................. 76 4.1: Introduction ...................................................................................................................................................... 76 4.2: Planned obsolescence ....................................................................................................................................... 76 4.3: The hedonic price analysis literature ................................................................................................................ 78 4.4: Theory .............................................................................................................................................................. 80 4.5: Modelling procedure ........................................................................................................................................ 83 4.6: Results .............................................................................................................................................................. 86 4.7: Conclusions ...................................................................................................................................................... 92 iii Chapter 5: Purchasing power parity and cultural convergence in the global video games market ................... 94 5.1: Introduction ...................................................................................................................................................... 94 5.2: Purchasing power parity and high-technology industries ................................................................................. 94 5.3: The purchasing power parity literature ............................................................................................................ 96 5.4: Evidence on purchasing power parity ............................................................................................................ 100 5.5: Implications .................................................................................................................................................... 102 5.6: Conclusions .................................................................................................................................................... 107 Chapter 6: An empirical analysis of blockbuster video games ............................................................................ 109 6.1: Introduction .................................................................................................................................................... 109 6.2: Blockbusters ................................................................................................................................................... 109 6.3: Data ................................................................................................................................................................ 112 6.4: Results ............................................................................................................................................................ 116 6.5: Conclusions ...................................................................................................................................................