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

Private Regulation by Platform Operators – Implications for Usage Intensity

Platforms operators act as private regulators to increase usage and maximize profits. Their goals depend on the development of the platform: overcoming the chicken-egg problem early on requires attracting platform participants while quality becomes more important later on. Private regulators influence third-party business models, entry barriers, and usage intensity. We analyze how drivers of usage intensity on Facebook’s application platform were affected by a policy change that increased quality incentives for applications. This change led to the number of installations of each application becoming less important, applications in more concentrated sub-markets achieving higher usage, and applications staying attractive for longer

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

The Strength of Direct Ties: Evidence from the Electronic Game Industry

We analyze the economic effects of a developer’s connectedness in the electronic game industry. Knowledge spillovers between developers should be of special relevance in this knowledge-based industry. We calculate measures for a developer’s connectedness to other developers at multiple points in time. In a regression with developer, developing firm, publishing firm, and time fixed effects, we find that the number of a developer’s direct ties, i.e., common past experience, has a strong effect on both a game’s revenues and critics’ scores. The intensity of indirect ties makes no additional contribution to the game’s success

Incentives for Quality over Time – The Case of Facebook Applications

We study the market for applications on Facebook, the dominant platform for social networking and make use of a rule change by Facebook by which high-quality applications were rewarded with further opportunities to engage users. We find that the change led to quality being a more important driver of usage while sheer network size became less important. Further, we find that update frequency helps applications maintain higher usage, while generally usage of Facebook applications declines less rapidly with age

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

Private Regulation by Platform Operators – Implications for Usage Intensity

Platforms operators act as private regulators to increase usage and maximize profits. Their goals depend on the development of the platform: overcoming the chicken-egg problem early on requires attracting platform participants while quality becomes more important later on. Private regulators influence third-party business models, entry barriers, and usage intensity. We analyze how drivers of usage intensity on Facebook’s application platform were affected by a policy change that increased quality incentives for applications. This change led to the number of installations of each application becoming less important, applications in more concentrated sub-markets achieving higher usage, and applications staying attractive for longer.private regulation multi-sided platforms usage intensity

The Strength of Direct Ties: Evidence from the Electronic Game Industry

We analyze the economic effects of a developer’s connectedness in the electronic game industry. Knowledge spillovers between developers should be of special relevance in this knowledge-based industry. We calculate measures for a developer’s connectedness to other developers at multiple points in time. In a regression with developer, developing firm, publishing firm, and time fixed effects, we find that the number of a developer’s direct ties, i.e., common past experience, has a strong effect on both a game’s revenues and critics’ scores. The intensity of indirect ties makes no additional contribution to the game’s success.network analysis; game industry; knowledge spillovers

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

Catch me if you can: effectiveness and consequences of online copyright enforcement

We evaluate the unexpected shutdown of kino.to, a major platform for unlicensed video streaming in the German market. Using highly disaggregated clickstream data in a difference-in-differences setting, we compare the web behavior of 20,000 consumers in Germany and three control countries. We find that this intervention was not very effective in reducing unlicensed consumption or encouraging licensed consumption, mainly because users quickly switch to alternative unlicensed sites. We highlight that the shutdown additionally had important unintended externalities. Individuals who never visited kino.to and who additionally clicked on news articles that covered the shutdown increased their visits to piracy websites substantially. We show that this effect largely comes from articles that explicitly mention alternative websites or suggest that users do not have to fear legal consequences from unlicensed streaming. Finally, we document that the unlicensed video streaming market is much more fragmented after the shutdown, potentially affecting future interventions, at least in the short run.We argue that our results can be helpful to understand why online piracy rates are still high, despite a plethora of enforcement efforts.info:eu-repo/semantics/acceptedVersio