First-party complements in platform markets: a dynamic perspective

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Complements in platform markets are either produced by third-party suppliers or the platform owner itself. The role and dynamics of first-party complements (FPC) are an understudied phenomenon. While they are ubiquitous in real platform markets, academic literature on the topic is sparse. Moreover, the existing literature tends to focus on the effect of the introduction of first-party complements on third-party producers, with ambiguous results so far. Part of the reason the literature has not come to a consensus on whether first-party complements benefit or hinder third-party complements is that the strategic considerations by platform owners can be complex and may change over time. When and why do platform owners introduce first-party complements? Where do they position them, and how does the positioning depend on the stage of the platform’s lifeycle? Using a rich dataset on the video game industry we will test empirically where and when platform owners introduce first-party complements and how their strategy depends on the stage in the focal platform’s (and competing platforms’) lifecycle. Based on the empirical results we develop a formal model of a platform market with differentiated complements where platform owners can introduce first-party complements. Finally, we extend our model and our empirical analysis to allow for the platform owner to bundle the platform with one of its complements, to study if platform owners can ensure the success of their platform in different stages of its lifecycle through bundling. Our project will make both theoretical and empirical contributions to the emerging literature in strategic management on platform markets.