Article | Strategic Management Journal

Entry into Platform-based Markets

by Feng Zhu and Marco Iansiti

Abstract

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's position is unsustainable.

Keywords: platform-based markets; winnter-take-all; first-mover advantage; indirect network effects; video game industry; Quality; Network Effects; Market Entry and Exit; Technology Platform; Motion Pictures and Video Industry;

Citation:

Zhu, Feng, and Marco Iansiti. "Entry into Platform-based Markets." Strategic Management Journal 33, no. 1 (January 2012): 88–106.