Design Cost and Transition from User Innovators to Entrepreneurs: Evidence from the Video Game Industry

12:00 pm May 2, 2018

HBS Cotting House Conference Room, 1st floor

Abstract: Who becomes an entrepreneur in the digital economy with lowered design cost? This paper discusses how design cost affects the career transition to an entrepreneur in the context of user innovation. While user innovators are believed to disclose their ideas freely, recent statistics and case studies report that more user innovators are becoming entrepreneurs to compete in the product market. I ask whether lowered design cost may explain the change by examining the video game industry empirically. A video game consists of core engine and game code, and many game developers allow users to modify game code to enhance quality and novelty. As some core engine companies start to provide the engine at a significantly lowered price for startups, user innovators based on these engines are able to commercialize their innovation as standalone products. The main findings suggest that when the cost of licensing core game engine decreases dramatically, user innovators are more likely to release independent games based on their prior modifications. The findings suggest that the access to complementary assets for design may be important for potential entrepreneurs, and that a decrease in design cost may facilitate a gale of creative destruction by entrepreneurs.

Speaker Bio: Ohchan Kwon is a fifth-year doctoral student in the Technology and Operations Management (TOM) Unit at Harvard Business School. His research interests include managing innovation, strategic human capital, and the economics of digitization. He seeks to understand such issues by examining detailed micro-level data from various companies.

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