Does platform owner's entry crowd out innovation? Evidence from google photos

We study platform owner's decision to enter the market complementary to its platform with its own complement, and the consequences of such an entry on complementors' decision to innovate in the affected market category. We ask: if a platform owner like Google releases an app for its Android platform, does it keep app developers from innovating in the future? We investigate two mechanisms that suggest entry to stimulate complementary innovation. A racing mechanism, which prompts affected complementors to innovate due to competitive "Red Queen" dynamics, and an attention spillover mechanism, which suggests increased innovation to result from spillover consumer attention to same-category complements. We exploit a unique setting provided by Google's entry into the market for photography apps on its own Android platform in 2015 as a quasi-experiment. Whereas several models predict such an entry will erode complementors' incentives to innovate, our difference-in-differences analyses of time-series data on a random sample of 6,620 apps suggest the contrary. After entry, app developers were more likely to incrementally innovate their photography apps and to release new apps to the affected market category. Although we do not observe a racing effect, our analyses support the attention spillover effect. In other words, Google's entry created additional consumer attention and demand for photography apps, which spill over to complementors in the same category.