NATIONAL HENG KUNG UNIERSITY Graduate Institute of Political Economy The Economic Analysis to the Plug-Ins and Online-Game Industry in Taiwan by Yon Hon-Tsai Advisor: Prof. Guang-jong Fann Thesis Submitted in Partial Fulfillment of Requirements for the Degree of Master of Law June 2005
i 1997 Porter (1980)
ABSTRAT Following the successful development of online-games in South Korea, online-games were introduced into Taiwan and yielded considerable value. The profit-maximizing plug-in producers draw profits from online-game producers via the interactions between game suppliers, consumers and Internet cafes. The government had tried to eradicate the problems caused by online-games but failed and consequently suffered social surplus loss. The purpose of this thesis is to explore the causes of the existence of online-games and to provide some policy implications for the growth of this industry. First, I highlight the channels that the plug-ins affects the industry. Second, I analyze the structure of Taiwan s online-game industry based on the competition theory. The result shows that the plug-ins does lead loss of online-game industry; therefore, the manufacturers must employ foreclosure and/or leverage strategies to keep the market-power. Third, the two-stage model developed in the thesis elucidates the social value of the plug-ins. According to the competition theory, the analysis indicates that by tying the plug-ins and online-games, the loss from the existence of plug-ins could be transformed into the profitability of online-game producers. On the other hand, the analysis of the two-stage model shows that by adopting the strategy of price-squeeze, online-game producers share some of the surplus induced by the plug-ins. In sum, to avoid the plug-ins from entering the market raises social costs but not online-game producers profits, the monopolist s profits could be improved via virtual tie or real one. ii
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hoi and Stefanadis (2001) 43 arlton Waldman (2002) (Price Squeeze) IBM 43 J.P.hoi, and. Stefanadis, Tying, Investment, and the Dynamic Leverage Theory, Rand Journal of Economics, Vol.32 (2001), pp. 52-71. 20
$900 $100 $1000 IBM $910 $100 $1000 $1010 $10 $110 $10 $100 IBM $90 IBM $100 IBM $110 IBM IBM $1000 $890 IBM $890 (Price Squeeze)IBM $900 $10 (Price Squeeze) IBM 44 Adams and Yellen (1976) 45 44 J.P. hoi, Network Externality, ompatibility hoice, and Planned Obsolescence, Journal of Industrial Economics,Vol. 42 (1994), pp. 167-182. 45 W.J Adams,. and J.L Yellen,. ommodity Bundling and the Burden of Monopoly, Quarterly Journal of Economics,Vol. 90 (1976), pp. 475-498. 21
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EP λ β α λ β α N V V π 1 M = ( V M ) N EMO ( ) P N E 57 ( ) N E < 0 V P π 2M = ( V )N M 57 48
EO = ( ) N E < 0 P V ( ) N E < 0 > θ P V θ V θ θ > (( ) ) V θ, π 2 M = ( V θ )N π = N E M 2 ( ) P (Price Squeeze) V θ + ( E N ) c P 49
c + ( E N ) P π 2 = 0 π = ( V )N θ N E > 2M M ( ) 0 P π 2 M ( V + M ) N EP = θ (1) E = (2) (3) O ( ) 0 N E P 1. 0 2. 3. 4. 50
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[ ( + β )] ( E + α ) N P ( ) ( ) N + β + E + α π 0 2 = P ( π 2M = ( V θ + + β ) M λ) N ( EP + α) Nβ + α [ ] N EP 1. 0 2. 3. 4. 53
(1) E > ( )N P (2)( ) ( ) ( )N N Nβ + α < E P (3) E P ( ) N ( Nβ + α ) θ ( )N ( ) ( ) P N Nβ + α < E λn ( V M λ )N θn λ > θ π 2 M = ( V θ + M ) N EP ( ) N EP N θ ( θ ) N EP 54
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8. http://www.is-law.com 2003 7 16 9. http://tw.finance.yahoo.com 2004 2 11 10. http://search.moj.gov.tw/game/index.asp 2003 11 20 11. http://news.gamebase.com.tw 2003 4 21 12. http://www.find.org.tw 2004 10 8 1. Adams, W.J. and J.L. Yellen, ommodity Bundling and the Burden of Monopoly, Quarterly Journal of Economics,Vol. 90 (1976), pp. 475-498. 2. Bruckman, Amy, Emergent Social and Psychological Phenomena in Text-Based Virtual Reality, Identity Workshop, MIT Media Laboratory (April 1992). Website: ftp://ftp.cc.gatech.edu/pub/people/asb/papers/identity-workshop.rtf (Viewed on May 7, 2004). 3. hoi, J.P., Network Externality, ompatibility hoice, and Planned Obsolescence, Journal of Industrial Economics,Vol. 42 (1994), pp. 167-182. 4. hoi, J.P., Preemptive R&D, Rent Dissipation and the Leverage Theory, Quarterly Journal of Economics, Vol. 111 (1996), pp. 1153-1181. 5. hoi, J.P. and. Stefanadis, Tying, Investment, and the Dynamic Leverage Theory, Rand Journal of Economics, Vol. 32 (2001), pp. 52-71. 6. urtis, P. and D. Nichols, Muds Grow up: Social Virtual Reality in the Real World, Third International onference on yberspace, Austin, Texas (May 1993). Website: ftp://parcftp.xerox.com:/pub/moo/papers/mudsgrowup. (Viewed on March 6, 2004). 62
7. Waldman, Michael and Dennis W. arlton, The strategic use of tying to preserve and create market power in evolving industries, The Rand Journal of Economics, Vol. 33 (2002), pp. 194-220. 8. Whinston, M.D., Tying, Foreclosure, and Exclusion, American Economic Review, Vol. 80 (1990), pp. 837-859. 9. Willamson, O.E., Assessing Vertical Market Restrictions: Antitrust Ramifications of the Transaction ost Approach, University of Pennsylvania Law Review, Vol. 127 (1979), pp. 953-993. 63