Platform Preannouncement Strategies: The Strategic Role of Information in Two-Sided Markets Competition

Abstract

The release of a new platform version is often preceded by prelaunch activities including a preannouncement of new features, improvements, and other innovations. The information contained within these preannouncements not only shape expectations of distinct but connected sides, for example, users and developers in a video game platform, but also informs a rival platform in a competitive market. Through a game-theoretic analysis of three different preannouncement strategies (formal, informal, and no-preannouncement) in a duopoly, our research furthers the understanding of externality-related information on expectation formation and the associated competitive dynamics. The literature on the role of information in platform competition is limited, and as the first to model the use of this information (through preannouncements) as a strategic lever, we characterize the firms’ equilibrium preannouncement strategies under different market conditions including when agents have an option to switch and/or the ability to multihome. Our findings show a clear relationship between the equilibrium preannouncement strategies and agents’ strength of taste preferences. In markets with weak preferences, firms pursue a no-preannouncement strategy in equilibrium to a formal preannouncement strategy where users and developers have strong taste preferences. Overall, our welfare analyses reveal that in a competitive market, firms will prefer not to preannounce their platform features even if preannouncement may increase expected network effects. Consumer and social welfare are both higher in multihoming markets than in single-homing ones. This paper was accepted by Chris Forman, information systems.