Demand Heterogeneity in Platform Markets: Implications for Complementors

Abstract

meeting, and DRUID 17. We also thank Mary Tripsas and three anonymous reviewers for their time and valuable guidance, which led to a much improved version of the paper. We acknowledge three research assistants for their data collection efforts and Andy Webb for his insights on the UK video games industry. All mistakes are our own. AbstractWhile two-sided platforms (e.g., video game consoles) depend on complements (e.g., games) for their success, the success of complements is also influenced by platform-level dynamics. Research suggests that greater platform adoption benefits complements by providing more potential users, but this assumes that platform adopters are homogeneous. We build on extensive research exploring the heterogeneity between early and late platform adopters to identify counterintuitive dynamics for complements.Complements launched early in a platform's lifecycle face an audience entirely of early platform adopters, whereas later-launching complements face a mixed audience of both early and late adopters, and we argue that differences in preferences and behavior between early and late adopters affect whether complements will succeed and which types will be most successful. We explore these dynamics in the context of the console video game industry using a unique dataset of 2,918 video games released in the United Kingdom from 2000 to 2007. We show that despite the increase in the potential user pool as the platform evolves, video games launched later in the platform lifecycle realize lower sales than those launched earlier. While increased competition explains part of this effect, we show substantial evidence consistent with our theory of preference differences between early and late adopters. This includes the finding that the negative effect is stronger for novel games and that the gap between popular and less popular complements widens as later adopters move into the platform, consistent with late adopters being risk averse and seeking to avoid purchasing mistakes.

Optimal distinctiveness, strategic categorization, and product market entry on the Google Play app platform

“…Finally, we add to the nascent and growing literature on platform ecosystems (McIntyre & Srinivasan, ; Rietveld & Eggers, ). To date, this literature has primarily has adopted the platform as the unit of analysis and has tended to focus on either the strategies that a platform can adopt to achieve a competitive advantage vis‐à‐vis rivals or the strategies that a platform can enact to solve the “chicken‐or‐the‐egg” problem associated with two‐sided business models (Cennamo & Santalo, ; McIntyre & Srinivasan, ; Rietveld & Eggers, ; Zhu & Iansiti, ). Our study is among the first to specifically examine intra‐platform competition among producers.…”

“…Specifically, any alignment with the prototype can dilute the strategic benefits that products potentially gain from conformity with the exemplar. We argue that this dynamic is likely to be found in markets characterized by low barriers to entry and a lack of shakeout at the later stages of the product life cycle (Klepper, ), because it creates a hyper‐crowded market—a situation often found in many platform markets (Rietveld & Eggers, ). This is exacerbated by the low cost of keeping many products, including failed ones, on the platform for extended periods of time.…”

Business model diversification and firm performance: A demand‐side perspective

“…As such, Adner and Snow () cite heterogeneity in consumer preferences as a critical factor determining whether more than one offer (or model) can succeed in a particular market. While previous research typically studied demand heterogeneity at the level of consumer segments (e.g., Adner, ) or the level of a firm's potential consumer pool (e.g., Rietveld & Eggers, ), our focus is on‐demand heterogeneity at the level of individual consumers.…”

Platform Growth Model: The Four Stages of Growth Model

“…Many academic researchers have investigated platform business from academic perspectives [1][2][3][4][5][6][7][8][9][10][11][12][13][14][15][16][17][18]. Recently, there have been efforts to complement these independent investigations and undertake interdisciplinary research studies [13,19,20]. Fuelling the growing interest in platform businesses is that they build market momentum [21] and enable adaption to unanticipated changes in the external environment [19].…”