Ecosystem Competition: Platforms, Subsidiary Markets and Multihoming in the Videogames Industry

Practice and Policy Oriented Abstract for “Ecosystem Competition: Platforms, Subsidiary Markets and Multihoming in the Videogames Industry” This study examines how royalty-bearing game sales and multi-platform publishing reshape competition in the videogame console industry. By modeling consoles, publishers, and gamers as part of an interconnected ecosystem rather than a simple two-sided market, the analysis shows that downstream game revenues can intensify, rather than soften, platform competition. When consoles expect to earn royalties from later game purchases, they have stronger incentives to lower hardware prices to attract gamers, while shifting more of the revenue burden to publishers through higher licensing fees under royalty-based contracts. The study also finds that when publishers release games on multiple platforms, gamer subsidies deepen, licensing fees rise, and multihoming may cease to benefit platforms beyond a threshold, overturning a common assumption in platform strategy. For practice, these findings suggest that platform managers should evaluate pricing, exclusivity, and revenue-sharing decisions at the ecosystem level, not in isolation. For policy, the results imply that regulators and industry observers should expect royalty structures and content distribution rules to affect consumer prices, publisher bargaining power, and market competition in digital ecosystems more broadly.