Winner does not take all: Selective attention and local bias in platform-based markets

Abstract

<p>We model how macro-level dynamics of platform competition emerge from micro-level interactions among consumers. We problematize the prevailing winner-take-all hypothesis and argue that instead of assuming that consumers value the general connectivity of an entire network, they are selectively attentive and locally biased. We contrast several alternative agent-based models with differing sets of assumptions regarding consumer agents' behavior and compare their predictions with empirical data from the competition between Sony's PlayStation 3 and Microsoft's Xbox 360. The results show that only when consumers are assumed to be selectively attentive and locally biased is it possible to explain real-life market sharing between the given platforms. In effect, it is shown how a late-entrant platform can get adopted by most consumers in the market, despite the fact that an early entrant has greater initial installed base, greater pool of complementary products, and lower initial price.</p>