The entry‐deterring effects of synergies in complementor acquisitions: Evidence from Apple's digital platform market, the iOS app store

Abstract

Abstract Research Summary Acquisitions can shift the market structure of a digital platform in ways that affect subsequent entries and hence the platform's base of complementors. Synergies that complementor acquirers accrue can be entry‐deterring. We develop a two‐by‐two typology of acquisition synergies in a multisided platform based on the two sides of a platform market (user side or complementary‐technology side) and two sources of synergies (economies of scale or economies of scope). We then leverage over 279,000 app developers' entry decisions into product categories in Apple's iOS App Store, over 71 million customer reviews, and over 12,000 unique software development kits to construct measures of synergies. Our paper contributes to the platform literature by demonstrating the entry‐deterring effects of synergies that complementor acquirers can exploit. Managerial Summary We develop the following typology of four types of acquisition synergies by integrating the multisidedness feature of digital platforms with the mainstream strategy research: complementary‐technology‐side economies of scope, complementary‐technology‐side economies of scale, user‐side economies of scope, and user‐side economies of scale. We show that (1) acquisition synergies are entry‐deterring, (2) synergies derived from economies of scope have stronger effects than those derived from economies of scale, and (3) synergies derived from the technology side have stronger effects than those derived from the user side. We highlight the significant competitive and regulatory implications of our findings. For example, one standard‐deviation increase in technology‐side economies of scope is associated with 55 deterred entries in 1 month or a $2.80 million potential loss in annual revenue. [Correction added on 15 July 2024, after first online publication: Research Summary and Managerial Summary have been corrected in this version.]

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