Demand Heterogeneity in Platform Markets: Implications for Complementors

Organization Science, 29(2), pp. 304–322

48 Pages Posted: 14 Jan 2016 Last revised: 24 May 2018

See all articles by Joost Rietveld

Joost Rietveld

UCL School of Management

J. P. Eggers

New York University (NYU) - Leonard N. Stern School of Business

Date Written: October 17, 2017

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 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.

Keywords: two-sided platforms, complementors, technology evolution, demand-side view, video games

Suggested Citation

Rietveld, Joost and Eggers, J. P., Demand Heterogeneity in Platform Markets: Implications for Complementors (October 17, 2017). Organization Science, 29(2), pp. 304–322. Available at SSRN: https://ssrn.com/abstract=2714366 or http://dx.doi.org/10.2139/ssrn.2714366

Joost Rietveld (Contact Author)

UCL School of Management ( email )

Level 38, One Canada Square, Canary Wharf
London, E14 5AA
United Kingdom

HOME PAGE: http://www.strategyguide.nl

J. P. Eggers

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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