Cross-Platform Spillover Effect of Promotion: Evidence from the PC Game Market

Abstract

Platform owners employ strategic promotions (e.g., platform-initiated penetration pricing) to enlarge their customer base. Under the conventional price-driven economic logic, such promotions are expected to divert demand for the identical goods away from competing platforms, as extensively documented in the conventional brick-and-mortar store context. However, they can also boost the demand. In environments where customers can easily access the identical goods on competing platforms, the increased awareness by strategic promotion, coupled with other non-price factors, can stimulate the purchases of such goods on competing platforms. As such, the effect of strategic promotions on competitive dynamics remains unclear despite their importance for platforms and today’s intensifying platform competition. We utilize the context of online PC game marketplaces where Steam and Epic Games Store dominate. Using the synthetic control approach, our analysis finds that the strategic promotion by Epic Games Store, which offers selected games for free for a week, rather increases the sales of the identical games on Steam substantially (by 59.2%) during that week. In essence, although consumers could obtain the games for free on the promoting platform, more consumers purchased the identical games on the competing platform than before. To comprehensively understand the drivers and conditions of this phenomenon, we perform complementary analysis based on the Attention-Interest-Desire-Action framework, following the progression of consumers’ cross-platform purchase decision process. Using consumer survey and product review data, along with the decomposition of the treatment effect, our results suggest that the effect is more prominent when the price gap between platforms is small and externalities between users or between goods offered by Steam are high. Taken together, our study unveils a unique aspect of strategic promotion in the context of platform competition and highlights the crucial role of externalities in shaping the competitive landscape of digital platforms.