Strategic Responses to Innovation Shocks: Evidence from the Video Game Industry

A major concern of the strategy and innovation literature on platforms has been how complementors are affected by and respond to innovations in platform characteristics. We contribute to this research by examining how complementors choose their homing strategies in response to a platform innovation shock. We theorize that comparative adjustment and opportunity costs can predict these choices, and we test our predictions using data on complementor responses to the introduction of Generation 6 video game consoles. Consistent with our predictions, we find that complementors’ choices of whether to develop games for a single console, multiple consoles sequentially, or multiple consoles simultaneously depend on proxies for their comparative adjustment and opportunity costs of adopting each of these strategies.