Generational Transitions in Platform Markets: The Role of Backward Compatibility

Tobias Kretschmer, Jörg Claussen

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    Abstract

    The introduction of a new product generation forces incumbents in platform markets to rebuild their installed base of complementary products. Using three different data sets on the U.S. market for video game consoles, we show that incumbents can, to some extent, substitute for rebuilding their new installed base by making their new products backward compatible, which lets them draw on the installed base of software for the parent generation. However, while this positive direct effect of backward compatibility dominates in our setting, we also observe a (weaker) negative indirect effect working through the reduced supply of new software. We find that both effects are moderated by the age of the new technological generation and by the technological leap between generations: backward compatibility becomes less important with increasing console age and larger technological improvement between generations.
    Original languageEnglish
    JournalStrategy Science
    Volume1
    Issue number2
    Pages (from-to)90-104
    ISSN2333-2050
    DOIs
    Publication statusPublished - 2016

    Keywords

    • Backward compatibility
    • Platform markets
    • Installed base
    • Video game industry

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