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Demand Heterogeneity in Platform Markets: Implications for Complementors

Rietveld, J; Eggers, JP; (2018) Demand Heterogeneity in Platform Markets: Implications for Complementors. Organization Science , 29 (2) pp. 304-322. 10.1287/orsc.2017.1183. Green open access

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Abstract

While 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 life cycle 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 data set 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 life cycle 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.

Type: Article
Title: Demand Heterogeneity in Platform Markets: Implications for Complementors
Open access status: An open access version is available from UCL Discovery
DOI: 10.1287/orsc.2017.1183
Publisher version: https://doi.org/10.1287/orsc.2017.1183
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: two-sided platforms, complementors, technology evolution, demand-side view, video games
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management
URI: https://discovery.ucl.ac.uk/id/eprint/10056197
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