Innovation and profitability following antitrust intervention against a dominant platform: The wild, wild west?

Abstract

Research Summary This study examines whether “unblocking” competition through antitrust intervention against a dominant platform can spur complementor innovation in platform ecosystems. Using a novel dataset on enterprise infrastructure software and a difference‐in‐differences design, we examine the relation between the U.S. antitrust intervention against Microsoft (dominant enterprise platform) and subsequent innovation and profitability of infrastructure applications firms (complementors). The data show that innovation among complementors—particularly ones with low market share—soared when the competitive pressure on the dominant platform amplified. However, the profitability of these complementors dropped. Our results contribute to understanding links between competition and innovation in platform ecosystems, as well as the opportunities and threats related to dominant platforms in those ecosystems. Managerial Summary Complementors (apps, services) that are owned by their platforms often have an unfair advantage. Antitrust action challenges the power of such dual platform‐complementors, reasoning that unfair advantage blocks fair competition, and, in turn, reduces firms' incentives to innovate and thus limits consumer choice. We examine whether reducing anticompetitive barriers and platform‐complementors' power revitalizes the platform ecosystem. Using a landmark antitrust case, we find mixed results: while complementors do innovate more, their profits go down. In particular, the low‐share complementors that bring in the most innovation are also the ones that lose the most financially, suggesting that they may have over‐relied on the platform for key assets. To develop a healthy ecosystem in the long run, platform owners may want to resist the temptation to keep complementors weak and instead help support their development to stand on their own.

Digital Mergers and Acquisitions and Enterprise Innovation Quality: Analysis Based on Research and Development Investment and Overseas Subsidiaries

“…Furthermore, the acquiring enterprises can establish effective communication bridges with users through digital platforms, accumulating more customer resources by tracking customer preferences and feedback. For instance, digital platforms can integrate and interact online and offline, reaching a wider audience through digital channels [40]. This is beneficial for the acquiring enterprises as it provides a clearer understanding of current market trends and personalized consumer needs.…”

Taming Platform Power: Taking Accountability Into Account In The Management Of Platforms

“…The market dominance of platform owners is also a critical factor that allows them to pursue mergers and acquisitions, which give them competitive advantage over other firms (Parker, Petropoulos, & Van Alstyne, 2021;Miric et al, 2021;Thatchenkery & Katila, 2023). That is, using their outsized market cap and projected revenues, platform owners can gain access to substantial credit, which allows them to outcompete other firms and pursue a strategy of "hostile mergers" and "killer acquisitions" (Cunningham, Ederer, & Ma, 2021).…”

We act therefore we are: A theory of action‐driven strategy

“…Therefore, decision‐makers rely on recent experience and on information that is salient and quickly accessible to decide (Frederiks et al, 2015; Liedtka, 2015). Firms also tend to weigh more favorably recent experiences in predictions of their outcomes (Argote et al, 2021; Gavetti & Levinthal, 2000; Li et al, 2013) and are likely to focus their attention on competitors they deem more significant (Prato & Stark, 2023; Thatchenkery & Katila, 2023; Tsai et al, 2011). Further strengthening our argument, the availability of novel and salient information in locations selected by top managers was associated with new product innovation (Li et al, 2013).…”