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Cited by 326Digital Platforms and EconomicsInnovation Diffusion and ForecastingSupply Chain and Inventory Management

Platform Performance Investment in the Presence of Network Externalities

Open access
Anderson, Edward G., Parker, Geoffrey G., Tan, Burcu·2014·Information Systems Research
DOI 10.1287/isre.2013.0505
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Abstract

Managers of emerging platforms must decide what level of platform performance to invest in at each product development cycle in markets that exhibit two-sided network externalities. High performance is a selling point for consumers, but in many cases it requires developers to make large investments to participate. Abstracting from an example drawn from the video game industry, we build a strategic model to investigate the trade-off between investing in high platform performance versus reducing investment in order to facilitate third party content development. We carry out a full analysis of three distinct settings: monopoly, price-setting duopoly, and price-taking duopoly. We provide insights on the optimum investment in platform performance and demonstrate how conventional wisdom about product development may be misleading in the presence of strong cross-network externalities. In particular, we show that, contrary to the conventional wisdom about “winner-take-all” markets, heavily investing in the core performance of a platform does not always yield a competitive edge. We characterize the conditions under which offering a platform with lower performance but greater availability of content can be a winning strategy.

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Crossref · 10.1287/isre.2013.0505

Cites

59 of 59 references verified0 citation errors · 0 not checkable

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Each is checked against this paper’s own text: does it say what the citing paper says it does?

  • Multihoming requires the development of a wider pool of technological capabilities at the complementor firm, resulting in a higher cost structure.

    “Multihoming also requires the development of a wider pool of technological capabilities at the complementor firm (Anderson et al. 2014), resulting in a higher cost structure.”

    From Smart Timing for Smart Products? Complementor Multihoming in Nascent Platform Markets (2026) · cites this paper as Anderson et al. 2014

  • The smart home market had a worldwide household penetration rate of 2.4% by 2017.

    “Although the smart home market was at a ferment stage during our study period, by 2017, it had already reached a worldwide household penetration rate of 2.4% and was expected to grow rapidly.5”

    From Smart Timing for Smart Products? Complementor Multihoming in Nascent Platform Markets (2026) · cites this paper as [5]

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Related

Authors
Anderson, E. G., Parker, G. G., & Tan, B.
Affiliations
  • The University of Texas at Austin (US)
  • Tulane University (US)
ORCID
Venue
Information Systems Research
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Published
2014-03
Volume
25
Issue
1
Pages
152-172
ISSN
  • 1047-7047 (ISSN-L)
  • 1526-5536
DOI
10.1287/isre.2013.0505
OpenAlex
W3123202234
Cited by
326
References
60
Citations by year
2026: 21 · 2025: 37 · 2024: 50 · 2023: 44 · 2022: 25 · 2021: 31 · 2020: 31 · 2019: 16 · 2018: 28 · 2017: 9 · 2016: 20 · 2015: 7 · 2014: 5 · 2013: 1 · 2012: 1
FWCI
32.41
Type
journal article
Language
en
Open access
Locations
  • Information Systems Research (publishedVersion)
  • SSRN Electronic Journal (acceptedVersion)
Topics
  • Social Sciences › Business, Management and Accounting › Strategy and Management › Digital Platforms and Economics
  • Social Sciences › Decision Sciences › Management Science and Operations Research › Innovation Diffusion and Forecasting
  • Social Sciences › Business, Management and Accounting › Management Information Systems › Supply Chain and Inventory Management
Keywords
video game industry, product development strategy, monopoly, duopoly, winner-take-all markets

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