Discussion paper

DP11207 The value of incumbency in heterogeneous platforms

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.


CREMER, J and G Biglaiser (eds) (2016), “DP11207 The value of incumbency in heterogeneous platforms”, CEPR Press Discussion Paper No. 11207. https://cepr.org/publications/dp11207