Market leadership through technology – Backward compatibility in the U.S. Handheld Video Game Industry

The introduction of a new product generation forces incumbents in network industries to rebuild their installed base to maintain an advantage over potential entrants. We study if backward compatibility moderates this process of rebuilding an installed base. Using a structural model of the U.S. market for handheld game consoles, we show that backward compatibility lets incumbents transfer network effects from the old generation to the new to some extent but that it also reduces supply of new software. We examine the tradeoff between technological progress and backward compatibility and find that backward compatibility matters less if there is a large technological leap between two generations. We subsequently use our results to assess the role of backward compatibility as a strategy to sustain market leadership

Switching Costs in Two-Sided Markets

In many markets, there are switching costs and network effects. Yet the literature generally deals with them separately. This paper bridges the gap by analyzing their interaction (or ‘indirect bargain’) in a dynamic two-sided market. It shows that in the symmetric equilibrium, the classic result that the first-period price is U-shaped in switching costs does not emerge, but instead switching costs always intensify the first-period price competition. Moreover, an increase in switching costs on one side decreases the first-period price on the other side. Policies that ignore these effects may overestimate the extent to which switching costs can reduce welfare

Market Leadership Through Technology - Backward Compatibility in the U.S. Handheld Video Game Industry

The introduction of a new product generation forces incumbents in network industries to rebuild their installed base to maintain an advantage over potential entrants. We study if backward compatibility moderates this process of rebuilding an installed base. Using a structural model of the U.S. market for handheld game consoles, we show that backward compatibility lets incumbents transfer network effects from the old generation to the new to some extent but that it also reduces supply of new software. We examine the tradeoff between technological progress and backward compatibility and find that backward compatibility matters less if there is a large technological leap between two generations. We subsequently use our results to assess the role of backward compatibility as a strategy to sustain market leadership.backward compatibility, market leadership, network effects, video games, two-sided markets

Platform Competition: A Systematic and Interdisciplinary Review of the Literature

Over the past three decades, platform competition—the competition between firms that facilitate transactions and govern interactions between two or more distinct user groups who are connected via an indirect network—has attracted significant interest from the fields of management and organizations, information systems, economics, and marketing. Despite common interests in research questions, methodologies, and empirical contexts by scholars from across these fields, the literature has developed mostly in isolated fashion. This article offers a systematic and interdisciplinary review of the literature on platform competition by analyzing a sample of 333 articles published between 1985 and 2019. The review contributes by (a) documenting how the literature on platform competition has evolved; (b) outlining four themes of shared scholarly interest, including how network effects generate “winner-takes-all” dynamics that influence strategies, such as pricing and quality; how network externalities and platform strategy interact with corporate-level decisions, such as vertical integration or diversification into complementary goods; how heterogeneity in the platform and its users influences platform dynamics; and how the platform “hub” orchestrates value creation and capture in the overall ecosystem; and (c) highlighting several areas for future research. The review aims to facilitate a broader understanding of the platform competition research that helps to advance our knowledge of how platforms compete to create and capture value

Backward Compatibility to Sustain Market Dominance – Evidence from the US Handheld Video Game Industry

The introduction of a new product generation forces incumbents in network industries to rebuild their installed base to maintain an advantage over potential entrants. We study if backward compatibility can help moderate this process of rebuilding an installed base. Using a structural model of the US market for handheld game consoles, we show that backward compatibility lets incumbents transfer network effects from the old generation to the new to some extent but that it also reduces supply of new software. We also find that backward compatibility matters most shortly after the introduction of a new generation. Finally, we examine the tradeoff between technological progress and backward compatibility and find that backward compatibility matters less if there is a large technological leap between two generations. We subsequently use our results to assess the role of backward compatibility as a strategy to sustain a dominant market position

AN INVESTIGATION OF DIGITAL PAYMENT PLATFORM DESIGNS: A COMPARATIVE STUDY OF FOUR EUROPEAN SOLUTIONS

This paper focuses on the triumph march of mobile phones that currently are annexing music players, navigation devices, and cameras as separate physical objects. The next target is set on payment. Through synthesizing available literature, we construct a framework for studying digital payment platforms that combines platform, technology and business design aspects. The framework is applied to conduct a comparative case study of digital payment platforms. Four types of market actors are considered: banks, mobile network operators, merchants, and startups, which are incumbents and disrupters in the payment industry. These actors issu four types of payment systems, and we can observe that three of four platforms types can be classified as multi-sided platforms (MSP). All alternatives seek foothold by issuing evolutionary payment instruments, which are intertwined with digital payment platforms. By hosting third-party services, payment instruments are evolving from single-purpose to multi-functional ones. Our research extends existing payment literature from the MSP perspective to emphasize certain digital payment platform components, which impact strategies and complementary products

A Dynamic Model of Platform Versioning and Its Impact on Third-Party Developers

Using the system dynamics methodology, we leverage extant research on digital platforms and Agile development from the information systems and strategic management literatures to create a dynamic framework for considering the effect of digital platform versioning under different levels of market dynamism. We find that the impact of platform versioning release cycle time (RCT) and the scope of platform updates on platform outcomes (number of packages available and number of downloads) depends on market dynamism, sensitivity of users’ utility to app breakage, and value of the platform’s core functionality to the developers. Among other results, we show that smaller, incremental updates of functionality are generally preferable to larger, radical updates, even in dynamic markets. In contrast, longer RCTs are preferred in less dynamic markets, while small to moderate RCTs are preferred in more dynamic markets. We conclude with an agenda for future research

Backward Compatibility to Sustain Market Dominance – Evidence from the US Handheld Video Game Industry

The introduction of a new product generation forces incumbents in network industries to rebuild their installed base to maintain an advantage over potential entrants. We study if backward compatibility can help moderate this process of rebuilding an installed base. Using a structural model of the US market for handheld game consoles, we show that backward compatibility lets incumbents transfer network effects from the old generation to the new to some extent but that it also reduces supply of new software. We also find that backward compatibility matters most shortly after the introduction of a new generation. Finally, we examine the tradeoff between technological progress and backward compatibility and find that backward compatibility matters less if there is a large technological leap between two generations. We subsequently use our results to assess the role of backward compatibility as a strategy to sustain a dominant market position.backward compatibility market dominance network effects two-sided markets