releases have increased as the fixed development costs of common content have soared, while the fixed costs of porting a game to additional platforms have fallen. Both of these increase the relative profitability of non-exclusive software releases, which in turn lead to the presence of cross-platform indirect network effects.
Our empirical results support this interpretation. We estimate a model of hardware demand and software supply that indicates that while platform-specific indirect network effects exist, in recent years generation-wide indirect network effects have also come to exist. Thus, the scope of indirect network effects has changed. We also carry out a simple illustrative exercise that shows why the
presence of positive cross-platform spillovers weakens the benefit that a platform gets from a strategy aimed at stimulating demand, such as the introduction of new software. While we do not estimate a dynamic model, we believe that our findings are suggestive of why, in recent generations, this industry has not been dominated by any single console. Furthermore, our results indicate that hardware compatibility is not the only factor affecting the scope of network effects in an industry. Rather, non-exclusive software creates another avenue by which cross-platform spillovers can arise, as changes in software development and porting technology increase the attractiveness of expanding the potential market through multi- platform releases.