How Do Complementors Respond to the Threat of Platform Owner Entry? Evidence from the Mobile App Market
By Wen Wen (University of Texas at Austin) & Feng Zhu (Harvard)
Abstract: How do complementors respond to the threat of platform owner entry, and how do such responses differ from the responses to actual entry? We examine how app developers on the mobile platform Android adjust their rate and direction of innovation efforts and prices in response to Google’s entry threat and actual entry into to the app markets. We find that developers affected by Google’s entry reduce innovation efforts on their affected apps and increase these apps’ prices after entry threats increase. They reduce innovation efforts and increase prices further on affected apps after Google’s actual entry. Affected developers, however, do not withdraw from the platform completely — once the threats increase, they shift innovation efforts from affected apps to updating other unaffected apps and to developing new apps.
Full Article: Social Science Research Network