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The Elite Cascade

http://www.gamasutra.com/view/news/38630/GameStop_Sells_600K_Call_Of_Duty_Elite_Memberships.php

Call of Duty: Modern Warfare 3 recently set the record for the biggest entertainment launch of all time, with over $400 million in sales in the first 24 hours of its release. A significant amount of these sales were for the new Call of Duty Elite package, which sold over 600k instances. Elite give players access to downloadable content, extra features and advanced stat and performance tracking. Given the addictive nature and widespread popularity of online play, Activision projects sales of over $450 for Elite alone in the coming fiscal year. Despite the loyal fan base of the Call of Duty series, it is still surprising that such a high percentage of gamers purchased the Elite package. Already paying $60 for the retail game along with a subscription for online play is costly enough let alone the addition $50 for Elite.

These extra elite sales can likely be explained by an information cascade. While most “elite” or “bonus” packages for retail videogames are usually sold online as downloadable content (or DLC), Activision chose to sell one year subscriptions to COD:MW 3 as hard copies in games stores such as GameStop as well as online.  According to GameStop president Tony Bartel “one half of the DLC we sell is to customers that have never purchased DLC before.” Thus, while diehard fans would have purchased this package regardless of purchase model, by considering gamers who never downloaded DLC and are on the fence about this package the power of information cascades becomes clear.

First consider a situation in which Elite is only sold through digital distribution after the purchase. While a gamer may overhear fellow shoppers or friends discussing the benefits of purchasing Elite, the signals he/she receives, if any, are weaker, and will likely not influence his decision to buy very much.

Now consider the position of a gamer in line camping outside a bestbuy for 3 hours. We assume that as each person on line enters the store, purchases the game (with or without Elite) and leaves, their actions are visible to the other shoppers on line, thus sending out a strong signal. As a key factor we also assume the people are on line in order of loyalty and investment in the Call of Duty franchise (COD addicts in the front, early-holiday-shopping grandparents in the back). Finally, while the actual utility of the product to these later shoppers is less than that of those in the front, they will not take this into account when receiving signals. To a shopper who is somewhere farther down the line, the state of the world is unknown, in that they are not sure whether or not they exist in a world where Elite is a valuable purchase. However, as this customer observes countless fans leaving before them with subscriptions to Elite, they are bombarded with powerful signals that increase the likelihood that the state exists where Elite is worth buying.

While DLC has been considered a smart business model for extra game content do to ease of impulsively paying in digital currency for this content, Activision may have discovered an significantly more successful system of in game sales through the power of social peer pressure and market cascades.

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