Platform Ecosystems, Bottlenecks, and M&A Activity: Implications for Platform Regulation

An increasing number of firms are part of a platform ecosystem, and this directly impacts their ability to create and capture value. In these ecosystems, various actors - notably the platform itself but also other actors - can gain control over strategic bottlenecks that govern how others may create and capture value. Control over key bottlenecks comes with significant possibilities to exert market power, and therefore there is a growing interest in how to best regulate platform firms as well as other powerful ecosystem actors. We examine the evolution of the console gaming industry from 1990 onwards, studying the shift in bottlenecks and the resulting shifts in ecosystem interdependencies and strategic acquisition patterns. Within this context we see bottlenecks shift, from platforms, to distributors, towards platforms again, and onto tool developers. These dynamics provide important insights into market power in platform ecosystems and digital markets more broadly, and in turn have implications for regulation. We contribute an evolutionary perspective that provides a framework for thinking about the shifting of bottlenecks and interdependencies within platform ecosystems and its consequences.