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Entry into platform‐based markets
Author(s) -
Zhu Feng,
Iansiti Marco
Publication year - 2012
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.941
Subject(s) - position (finance) , quality (philosophy) , industrial organization , business model , economics , business , microeconomics , marketing , computer science , philosophy , finance , epistemology
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.