Demand Heterogeneity and the Adoption of Platform Complements

How does platform maturity affect the adoption of complements in two-sided markets? A key feature of two-sided markets is the existence of indirect network effects. Here, I argue that demand heterogeneity from end-users adopting the platform at different points in time, moderates the extent to which complements enjoy these indirect network effects. An influx of late adopters that buy fewer complements and mimic earlier adopters’ adoption behavior, increasingly offsets the benefits of a growing installed base. Using a dataset of 2,855 sixth-generation console video games, I find that platform maturity has a concave curvilinear effect on video games’ unit sales. Platform maturity, however, does not affect all types of games equally. Late adopters increasingly favor non-novel video games at the cost of innovative ones. Furthermore, the adoption disparity between superstars and less-popular video games also widens as platforms mature. The paper contributes to research on demand-side perspectives and studies on platforms and two-sided markets.