The influence of user-generated content on video game demand

We examine the influence of favorable user-generated content on the demand for PC video games. As digital distribution has become the norm for video games, it has become relatively easy for independent developers to create and distribute games. The resulting increase in the variety of games being offered exacerbates the experience good nature of video games, wherein consumers don’t learn the quality of a good until after purchase. This suggests that recommendations from other users may play an increasingly important role in influencing the demand for video games. We use a unique dataset including 12,365 PC video games to explore the influence effect of user-generated descriptive tags on video game ownership. Results show a positive influence from tags that indicate high quality when an unobservable estimate of the time that owners devote to playing a game is used to control for underlying quality. It is further shown that multiplayer games, which are most likely to experience network effects, exhibit significantly decreased price sensitivity and an increased sensitivity to underlying quality but that the application of favorable tags does not impact demand differently for these goods. We find that having a popular publisher will boost new sales for a game, but positive tags have the same impact for games released by popular and non-popular publishers. Finally, we find strong evidence that user-generated content in the form of descriptive tags are also associated with shifts in video game demand.