Too Many Complementors? Evidence on Software Developers

Abstract

It is often presumed there are benefits from growing numbers of buyers and sellers around a platform, or “network effects.” While the benefits of more buyers are self-evident, the effects of ever-increasing numbers of sellers of complementary goods (“complementors”) perhaps deserve closer scrutiny. This paper illustrates through a simple model that attracting large numbers of complementors has the potential to crowd-out investment, resulting in a tradeoff between variety and quality. This paper uses point-of-sale data on a textbook example of large numbers of software developers around mobile computing platforms, to illustrate this tradeoff. Platform strategies emphasizing careful regulation of complementor entry would have led to more and possibly better software.

Keywords: Platforms, complementors, network effects, innovation

JEL Classification: L1, L86, 03