A hedonic study of network effects in the market for word processing software

We investigate the effects of various quality attributes and network-specific features on the price of word processing software using a hedonic price framework in order to assess the effect of the network variable on the quality-adjusted price. We find a positive effect of network externalities on price in this market that is similar to markets for spreadsheet and web server software as shown previously (Brynjolfsson and Kemerer [E. Brynjolfsson, and C. Kemerer Network externalities in microcomputer software: an econometric analysis of the spreadsheet market, unpublished draft, MIT Sloan School of Management, (1997)]; Gallaugher and Wang [J.M. Gallaugher and Y. Wang, Understanding network effect in software markets: evidence from web server pricing, MIS Quarterly 26 (4), (Dec. 2002), 303–327]; Gandal [N. Gandal, Hedonic price indexes for spreadsheets and an empirical test for network externalities, Rand Journal of Economics 25 (1) (Spring 1994)]). As observed in other software pricing studies, we find strong brand effects among word processors. However, quality attributes do not significantly impact price in this market. This is contrary to the evidence from studies of spreadsheet software. Furthermore, in contrast to the evidence from spreadsheets, prices adjusted for quality show an upward trend over time in the market for word processing software.