And the Winner Is …? The Desirable and Undesirable Effects of Platform Awards

Abstract

We study platform firms’ decision to recognize innovative products by complementors ex post through awards. We find that awards—despite being purely symbolic—might set incentives for complementors’ product strategies that can eventually lead to both desirable and undesirable outcomes for the platform firm. First, awards encourage recipients to focus on releasing complement improvements rather than new complements. Second, awards increases recipients’ likelihood of multihoming. Finally, awards increase new complement releases in the recipients’ market niche by attracting other complementors. Firms can directly benefit from the analyses presented in this study. For platform firms, this study’s results suggest that awards have significant effects on complementors’ behavior despite representing only symbolic and nonfinancial mechanisms. Platform managers should consider the flexibility of awards as a particular strength: an award can, for instance, be given to “the best complement” with no need to define the criteria exactly. Nevertheless, platform managers should be aware that employing awards requires a careful evaluation of whether their effects are desirable. Given that awards can encourage multihoming, platform managers are advised to employ additional mechanisms to increase recipients’ loyalty to the platform, for example, through contractual exclusivity arrangements.