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Title: The value of incumbency in heterogeneous platforms

Author(s): Gary Biglaiser and Jacques Crémer

Publication Date: March 2016

Keyword(s): network effects, network externalities and plaforms

Programme Area(s): Industrial Organization

Abstract: We study the dynamics of competition in a model with network effects, an incumbent and entry. We propose a new way of representing the strategic advantages of incumbency in a static model. We then embed this static analysis in a dynamic framework with heterogeneous consumers. We completely identify the conditions under which inefficient equilibria with two platforms will emerge at equilibrium; explore the reasons why these inefficient equilibria arise; and compute the profits of the incumbent when there is only one platform at equilibrium.

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Bibliographic Reference

Biglaiser, G and Crémer, J. 2016. 'The value of incumbency in heterogeneous platforms'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11207