Structure and competition in the U.S. home video game industry

TLDR

The video game industry has grown dramatically, becoming a mainstream media culture while a vibrant PC developer community and standard‑based non‑interoperability with network effects sustain competition amid a shrinking firm base. This paper applies an industrial organization framework to conceptualize and systematically analyze five vertical stages and key market segments of consoles, handheld, and PC games. It compares production and distribution patterns of these platforms with other major media to assess structural dynamics. Genre‑based analysis shows that consoles, handhelds, and PC games differ in product diversity driven by risk‑reward profiles, and the industry is maturing toward concentration and integration across its stages.

Abstract

Abstract The video game industry has continued to grow dramatically over the past decade, cutting into mainstream media in participation and revenues as it becomes part of mainstream media culture. Following the industrial organization model, this paper conceptualizes and systematically analyzes five vertical stages and the key market segments of consoles, handheld and PC‐based games. Genre‐based measures of content show that the different game platforms have varying levels of product diversity, driven by differing levels of risk and rewards. Comparisons in production and distribution are made with other major media. The main conclusion is that the industry is reaching a mature phase with concentration and integration beginning to be found in its stages. A mainstreaming of content is partially countered by a vibrant community of developers, mostly for PC games. As a standard‐based industry, non‐interoperability and network effects continue to play a key role in preserving competition in a field with a shrinking number of firms.