Demand-side Synergy and Firms' Competitive and Collaborative Strategies over Platform Lifecycle

Abstract

The paper examines how emergence of a digital platform that bolsters demand-side synergy affects complementary product firms’ competitive and collaborative strategies and how they evolve across the platform lifecycle. Building on demand-side research and digital platform literature, I suggest the bundling of a digital platform service can be an important source of firms’ demand-side product synergy and the potential size of demand-side economies of scope may vary across different stages of platform evolution. Using the context of U.S. medical diagnostic imaging equipment manufacturers 1987-2013 and the introduction of an image communication system in 1993, I find that on average, imaging device manufacturers spanning across multiple complementary product markets are more likely to bundle a platform service as opposed to the firms specialized in a single product market, and more so in the early period of the platform lifecycle. The results also suggest that firms with product/platform bundling are likely to further increase diversity in their product lines and create walled gardens around their platform services. In terms of within-industry collaborations, the complementary product firms with platform service are more likely to engage in alliances than those without, but less so as the platform matures.