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When less can be more – Setting technology levels in complementary goods markets

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  • Claussen, Jörg
  • Essling, Christian
  • Kretschmer, Tobias

Abstract

Higher technological quality often translates directly into higher consumer utility. However, many new products require a complementary product to operate. In such markets, releasing a technologically sophisticated product involves a trade-off as it excludes consumers whose complementary products no longer function with the core product. Firms therefore have to balance product quality against market size. Technological change brings a dynamic perspective to this trade-off as it renders existing technology obsolete but also increases performance of the complementary products, therefore increasing market potential. We study these mechanisms in the empirical context of computer games. In line with our expectations, we find an inverted U-shaped relationship between closeness to the technological frontier and sales revenues as well as differential effects of technological change depending on initial technological quality.

Suggested Citation

  • Claussen, Jörg & Essling, Christian & Kretschmer, Tobias, 2015. "When less can be more – Setting technology levels in complementary goods markets," Research Policy, Elsevier, vol. 44(2), pages 328-339.
  • Handle: RePEc:eee:respol:v:44:y:2015:i:2:p:328-339
    DOI: 10.1016/j.respol.2014.10.005
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    Cited by:

    1. Cenamor, Javier & Frishammar, Johan, 2021. "Openness in platform ecosystems: Innovation strategies for complementary products," Research Policy, Elsevier, vol. 50(1).
    2. Hakan Ozalp & Carmelo Cennamo & Annabelle Gawer, 2018. "Disruption in Platform‐Based Ecosystems," Journal of Management Studies, Wiley Blackwell, vol. 55(7), pages 1203-1241, November.
    3. Feng Zhu & Qihong Liu, 2018. "Competing with complementors: An empirical look at Amazon.com," Strategic Management Journal, Wiley Blackwell, vol. 39(10), pages 2618-2642, October.
    4. Tobias Kretschmer & Jörg Claussen, 2016. "Generational Transitions in Platform Markets—The Role of Backward Compatibility," Strategy Science, INFORMS, vol. 1(2), pages 90-104, June.

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    More about this item

    Keywords

    Technological frontier; Technological change; Computer games industry;
    All these keywords.

    JEL classification:

    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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