Milan Miric

Research Summary This article studies how the entry of an imitative product influences the demand for the original, in markets with a large number of products where consumers are not aware of most products. We suggest that the release of an imitative product triggers two countervailing forces: a discovery effect that increases awareness and demand for the original, and a substitution effect decreasing that demand. When the imitation is horizontally differentiated, the substitution effect is weaker, and the discovery effect leads to increased demand for the original, particularly so when the original is less well‐known. However, when the imitation is vertically differentiated, the discovery effect does not benefit the original, and the demand decreases given the substitution effect. We test our theory in the context of 3D‐printable products. Managerial Summary Imitative products typically harm the performance of the original product. This is in part the rationale for deterring imitation by acquiring intellectual property (IP) rights. However, as we demonstrate, the release of an imitative product may increase discovery of the original product, and therefore demand for it. In markets with a large number of products, products typically compete for attention, and an imitative product may serve as a channel through which attention spills over from the imitation to the original. This effect is more pronounced when the original product is less well‐known. This suggests that, under certain conditions, firms may benefit from pursuing a more open IP strategy that encourages imitation. Examples of marketplaces where imitation may increase demand for the original include those for music, e‐books, software, and mobile apps.

Research Summary In platform ecosystems, the creation of new products is often based on standardized development tools. Complementors often have a choice between either using these tools or creating the functionality themselves. In this paper, we study how the use of standardized development tools is related to the type of products created. By using data on the use of middleware (e.g., game engines) in the console video game market, we show that the use of development tools is associated with products that are less novel but with higher sales on average. We exploit a policy change that affected the ability of U.S.‐based developers to hire foreign workers as an instrument for the use of development tools and find further support for these patterns. Managerial Abstract When developing new products, firms often have to decide whether they base their technology on preexisting components and standardized tools or develop that technology themselves. In general, it has not been clear how using standardized third‐party tools that may be available to all firms in an industry affects the nature of the products that are created. Using data on middleware components, such as game engines, in the console video game industry, this paper shows the use of such standardized tools is associated with the creation of products that are less novel but generate higher sales on average. This is an important strategic consideration for firms, but also for platforms that make decisions regarding whether such tools should be allowed on their platform.