Halo or Cannibalization? How New Software Entrants Impact Sales of Incumbent Software in Platform Markets

Keywords

cannibalization, entertainment franchise, halo effect, indirect network effects, platform markets, superstars, two-sided markets, video games

Abstract

Platform markets involve indirect network effects as two or more sides of a market interact through an intermediary platform. Many platform markets consist of both a platform device and corresponding software. In such markets, new software introduc- tions influence incumbent software sales, and new entrants may directly cannibalize incumbents. However, entrants may also create an indirect halo impact by attracting new platform adopters, who then purchase incumbent software. To measure perfor- mance holistically, this article introduces a method to quantify both indirect and direct paths and determine which effect dominates and when. The authors identify relevant moderators from the sensations–familiarity framework and conduct empirical tests with data from the video game industry (1995–2019). Results show that the direct impact often results in cannibalization, which generally increases when the entrant is a superstar or part of a franchise. For the indirect halo impact, superstar entrants significantly increase platform adoption, which can help all incumbents. Combining the direct and indirect impacts, the authors find that only new software that is both a superstar and part of a franchise increases platform adoption sufficiently to overcome direct cannibalization and achieve a net positive effect on incumbent software; all other types of entrants have a neutral or negative overall effect.

Original Publication Citation

"Halo and Cannibalization Effects: How New Software Entrants Impact Incumbent Software in Two-Sided Markets", Journal of Marketing, Edition 3, Volume 86, 2022.

Document Type

Peer-Reviewed Article

Publication Date

2022

Publisher

Journal of Marketing

Language

English

College

Marriott School of Business

Department

Marketing

University Standing at Time of Publication

Associate Professor

Link to Full Text

Share

COinS