Generational Transitions in Platform Markets – The Role of Backward Compatibility

Strategy Science, Forthcoming

33 Pages Posted: 4 May 2010 Last revised: 12 May 2016

See all articles by Tobias Kretschmer

Tobias Kretschmer

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management); Centre for Economic Policy Research (CEPR)

Jörg Claussen

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management); Copenhagen Business School - Department of Innovation and Organizational Economics

Date Written: June 2016

Abstract

The introduction of a new product generation forces incumbents in platform markets to rebuild their installed base of complementary products. Using three different datasets on the US market for video game consoles, we show that incumbents can to some extent substitute for rebuilding their new installed base by making their new products backward compatible, which lets them draw on the installed base of software for the parent generation. However, while this positive direct effect of backward compatibility dominates in our setting, we also observe a (weaker) negative indirect effect working through the reduced supply of new software. We find that both effects are moderated by the age of the new technological generation and by the technological leap between generations: backward compatibility becomes less important with increasing console age and with larger technological improvement between generations.

Keywords: backward compatibility, platform markets, installed base, video games industry

JEL Classification: L15, L82, O33

Suggested Citation

Kretschmer, Tobias and Claussen, Jörg, Generational Transitions in Platform Markets – The Role of Backward Compatibility (June 2016). Strategy Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1599673

Tobias Kretschmer (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, DE 80539
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jörg Claussen

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, DE 80539
Germany

Copenhagen Business School - Department of Innovation and Organizational Economics ( email )

Kilevej 14A
Frederiksberg, 2000
Denmark

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
263
Abstract Views
1,766
rank
138,698
PlumX Metrics