The Impact of Acquisition on Product Quality in the Console Gaming Industry

TL;DR

This paper empirically examines how industry consolidation through acquisitions affects product quality in the console gaming industry, finding a positive impact on game review ratings post-mergers.

Contribution

It provides the first empirical evidence linking acquisitions to improved game quality, using a comprehensive difference-in-difference analysis over a large dataset.

Findings

Acquisitions lead to higher game review ratings.

The positive effect remains robust after controlling for genre and year.

The study enhances understanding of consolidation impacts on consumer welfare.

Abstract

The console gaming industry, a dominant force in the global entertainment sector, has witnessed a wave of consolidation in recent years, epitomized by Microsoft's high-profile acquisitions of Activision Blizzard and Zenimax. This study investigates the repercussions of such mergers on consumer welfare and innovation within the gaming landscape, focusing on product quality as a key metric. Through a comprehensive analysis employing a difference-in-difference model, the research evaluates the effects of acquisition on game review ratings, drawing from a dataset comprising over 16,000 console games released between 2000 and 2023. The research addresses key assumptions underlying the difference-in-difference methodology, including parallel trends and spillover effects, to ensure the robustness of the findings. The DID results suggest a positive and statistically significant impact of acquisition on game review ratings, when controlling for genre and release year. The study contributes to the literature by offering empirical evidence on the direct consequences of industry consolidation on consumer welfare and competition dynamics within the gaming sector.