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2.5 Limitations

2.5.3 Inter-industry effects

In addition to the micromechanisms that produce the industry life-cycle the inter-industry effects on it have been left without much research attention. Pistorius and Utterback (1997), however, have elaborated on the various interactions that different technologies may have. They propose the effect that one technology has on another's growth rate as a classification criterion. This gives three different kinds of interactions, namely pure competition, symbiosis and predator-prey. Competition between technologies usually takes place as mature technologies face substitution by new ones.

Symbiotic technologies have positive reciprocal effects on one another's growth rate. Pistorius and Utterback (1997) mention computer hardware and software as an example of such a relationship as sales in one aid sales in the other. Finally, a predator-prey relationship may arise when an emerging technology enters a niche market that is not served by a mature technology. The emerging technology will benefit from the presence of the mature one while the emerging technology may slowly be stealing market share from the mature technology. They argue that the interaction between technologies should be viewed in a broader sense than mere competition.

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The effect that vertically related industries have on each other‘s evolution has been studied to some extent. Bonaccorsi and Giuri (2001) have studied the dynamics of the jet and turboprop aircraft and engine industries and conclude that the evolution of a downstream industry affects the evolution of an upstream industry. The vertical exchange relations transmit the firm and product numbers, entries, exits and concentration upstream. These relations may be either partitioned or hierarchical with different transmission effects. The partitioned network structure identified in the turbo-prop technology directly transmits the changes of downstream to upstream industries, whereas the hierarchical network identified in the jet technology filters the effects. In the course of industry evolution the networks evolve and act as constraints to the evolution of industries. Furthermore, the emergence of a dominant design has an effect on supplying industries. Murmann and Frenken (2006) point out that standardisation at higher system level may force exits of firms but at the same time it may open entry at a lower subsystem level. Thus the emergence of a dominant design is followed by a shakeout at the system level while new avenues are opened for component level innovations from supplying industries.

Malerba et al. (2008) consider the effects that the market structures of vertically related industries may have on each other. They state that a fragmented system industry tends to specialise when it is confronted with a monopolistic component industry. On the other hand, a monopolistic system industry tends to become vertically integrated with component manufacturers when confronted by a fragmented upstream industry. The vertical integration and disintegration of firms is caused by differential development of capabilities among firms in uncertain technological and market environments. More specifically, Cacciatori and Jacobides (2005) argue that vertically disintegrated industries have a narrower scope of product possibilities compared to integrated industries. As each firm is specialised the degrees of freedom are considerably fewer than when the industry is occupied by generalists. Thus vertical reintegration can be triggered by changes in the environmental demands for the industry. Cacciatori and Jacobides (2005) report such developments in the British construction industry. Wolter and Veloso (2008) examine the incentives for disintegration and integration brought about by the four different kinds of innovations classified by Henderson and Clark (1990). Incremental innovation is not likely to induce changes in this respect whereas modular and radical innovations create incentives for both. Architectural innovation, on the other hand, encourages integration. Furthermore, Argyres and Bigelow (2007) argue that different stages of the industry life-cycle shape the vertical integration of an industry in different ways.

During the fluid state there are fewer pressures for resource alignment. As the dominant design emerges efficiency becomes a key success factor and transaction cost economizing is an important component in that. Thus make or buy decisions are made with different kinds of criteria during the fluid state and shakeout stage and that shapes the boundaries of industries.

There is practically no research on the effects that the dynamics of complementary products industries have on each other. In a sense upstream and downstream industries are complementary but the situation is different from those settings where the customer buys complementary end products from different producers. For example, the life-cycle of computer manufacturing has been studied (e.g. Filson 2002) but its impact on the life-cycle of the software industry has not been examined. Findings, such as that the number of car manufacturers peaked in 1909, and the number

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of tyre producers peaked in 1922 (Klepper 1997), have indeed been made, but there is still room for much empirical study on the effects of product complementarity. What effect does the emergence of a dominant design in a product class have on its complements? Is a shakeout in an industry followed by shakeouts in complementary industries? Is a radical innovation in an industry followed by radical innovations in complementary industries? Questions like these could be answered with research on the life-cycle dynamics of complementary industries.

The present study attempts to understand the dynamics of the games industry. Whether the evolution of this particular industry follows the propositions of the industry life-cycle theory will be investigated. The games industry represents a wider set of industries labelled as cultural industries.

While the industry life-cycle theory describes what is general in industry evolution, the cultural industries literature can tell us about the specificities faced within such industries. Hence reviewing the cultural industries literature will shed light on the kinds of conformities and deviations that are reasonable to expect to be found between the propositions of the industry life-cycle theory and the empirical analysis on the games industry.

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3 Cultural industries

As previously mentioned, the present study is motivated by an interest in the dynamics of the games industry. Literature on the games industry has so far been scarce and for this reason we will have recourse to the literature on cultural industries to give insight into the economic characteristics, management issues and industry dynamics specific to such industries.

Game development has been identified by many authors as one of the creative industries, but somewhat fewer place it under the cultural industries concept. At the same time the terms cultural industries and creative industries are used interchangeably by many authors (see Bilton and Leary 2002, p. 49; Towse 2003b, p. 170; Peterson and Anand 2004, p. 311; Thompson et al. 2007, p. 626).

However, the origins and original purposes of the two conceptualisations are quite different.

Research on the economics and management of the film and music industries has been active since the 1970s. The art and antiquities market has also been an active research site for decades. While the music industry has been studied mainly by sociologists, the film industry and the art market have been studied by economists. Later on the fashion industry and the games industry, on the side of the film and music industries, have received some attention from management scholars. Book and magazine publishing, opera, theatre, symphony orchestras, advertising agencies and television and radio broadcasting have also been studied from the economic and management perspective, although to a lesser degree.

In this study the game development industry is seen as one of the cultural or creative industries. The purpose of this chapter is to review the literature on such industries and to construct a coherent basis for the analysis of the industry life-cycle of the games industry. In order to achieve this, the literature has been sorted into a matrix (Appendix 1). The columns correspond to different industries whereas the rows correspond to different research streams.

In this chapter each of the research streams is introduced and the main arguments and findings are presented. The review is as exhaustive as is purposeful for the task at hand. The main emphasis is on economic characteristics, management issues and industry dynamics of cultural and creative industries. These research streams contribute the most to the study of the industry life-cycle of the creative or cultural industries in general and the games industry in particular.