Measuring Network Effects in a Dynamic Environment

This paper proposes methods for identifying indirect network eects with dynamically optimizing consumers purchasing a durable hardware good and associated software. We apply this model to data drawn from the DVD player and titles markets. We observe model-level prices, sales and characteristics of DVD players and sales and availability of DVDs monthly for 10 years. We augment these aggregate data with household survey data on player holdings. In our model, forward look- ing consumers buy possibly multiple DVD players over time and ben- et from the evolution of the titles market. We provide a framework for addressing a series of econometric problems which have not been systematically addressed before.