Market leadership through technology - backward compatibility in the U.S. handheld video game industry

Claussen, Jörg, Kretschmer, Tobias and Spengler, Thomas (2012) Market leadership through technology - backward compatibility in the U.S. handheld video game industry. CEP Discussion Papers (CEPDP1124). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

The introduction of a new product generation forces incumbents in network industries to rebuild their installed base to maintain an advantage over potential entrants. We study if backward compatibility moderates this process of rebuilding an installed base. Using a structural model of the U.S. market for handheld game consoles, we show that backward compatibility lets incumbents transfer network effects from the old generation to the new to some extent but that it also reduces supply of new software. We examine the tradeoff between technological progress and backward compatibility and find that backward compatibility matters less if there is a large technological leap between two generations. We subsequently use our results to assess the role of backward compatibility as a strategy to sustain market leadership.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2012 The Author(s)
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HC Economic History and Conditions
JEL classification:	L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L15 - Information and Product Quality; Standardization and Compatibility L - Industrial Organization > L8 - Industry Studies: Services > L82 - Entertainment; Media (Performing Arts, Visual Arts, Broadcasting, Publishing, etc.) O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O33 - Technological Change: Choices and Consequences; Diffusion Processes
Date Deposited:	26 Feb 2024 12:21
Last Modified:	26 Feb 2024 12:21
URI:	http://eprints.lse.ac.uk/id/eprint/121760

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