DP11207 The value of incumbency in heterogeneous platforms
|Author(s):||Gary Biglaiser, Jacques Crémer|
|Publication Date:||March 2016|
|Keyword(s):||network effects, network externalities, plaforms|
|JEL(s):||L12, L13, L86|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=11207|
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.