The value of incumbency for heterogeneous platforms

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 and embed it in a dynamic framework with heterogeneous consumers. We completely identify the conditions under which inefficient equilibria with two platforms emerge at equilibrium; explore the reasons why these inefficient equilibria arise; compute the profits of the incumbent and demonstrate that the incumbency advantage does not improve much, if at all, when going from a static to a dynamic framework.

Replaced by

Jacques Crémer, and Gary Biglaiser, “The Value of Incumbency When Platforms Face Heterogeneous Customers”, American Economic Journal: Microeconomics, November 2020, pp. 1–43.

Reference

Gary Biglaiser, and Jacques Crémer, “The value of incumbency for heterogeneous platforms”, TSE Working Paper, n. 16-630, March 2016, revised November 2016.