Entry into platform‐based markets

Abstract

This paper examines the relative importance of platform quality, indirect network effects, and consumer expectations on the success of entrants in platform‐based markets. We develop a theoretical model and find that an entrant's success depends on the strength of indirect network effects and on the consumers' discount factor for future applications. We then illustrate the model's applicability by examining Xbox's entry into the video game industry. We find that Xbox had a small quality advantage over the incumbent, PlayStation 2, and the strength of indirect network effects and the consumers' discount factor, while statistically significant, fall in the region where PlayStation 2's position is unsustainable. Copyright © 2011 John Wiley & Sons, Ltd.

Unpaid crowd complementors: The platform network effect mirage

“…Managing large numbers of complementors also requires modularized interfaces (Baldwin and Woodard, 2009) and some ability to govern complementor behavior productively (Boudreau and Hagiu, 2009). Of course, another boundary condition is simply that the returns to attracting complementors is not outweighed by other strategies, such as devoting resources to instead attracting users (Eisenmann and Hagiu, 2008) or innovating direct functionality and product benefits offered by a platform (Zhu and Iansiti, 2011).…”

The Role of Coordination Bias in Platform Competition

“…The second contribution of our paper is considering endogenous coordination bias, based on the platforms' track record of past successes in the marketplace. Zhu and Iansiti (2012) consider dynamic price competition between an entrant platform with a quality advantage, and an incumbent platform with an installed base advantage. If indirect network effects are sufficiently strong, the incumbent can use its superior installed base to overcome its quality disadvantage and win the market.…”

Entrance into a platform‐dominated market: Virtue of an open strategy on the numerical computation market

“…That model is synthesized in Figure 1. Zhu and Iansiti (2012) defined three regions of equilibrium as follows: 1. Whenever the network effects are weak, E prevails or coexists with I (e < 1).…”