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.