Winning while losing: Competition dynamics in the presence of indirect network effects

Sarit Markovich and Johannes Moenius

International Journal of Industrial Organization, 2009, vol. 27, issue 3, pages 346-357

Abstract: What determines competition dynamics in markets with indirect network effects? We analyze this question in a dynamic hardware-software framework, where software firms compete in quality upgrades. We identify market structure as a major determinant of competition dynamics. Indirect network effects tie together the performance of firms on the same platform: a successful competitor raises the value of all firms on the same platform, where an unsuccessful firm may enjoy a windfall increase in its market value. In contrast to the tipping result in the literature, we find tendencies toward increasing competition across platforms for a wide range of market structures.

Keywords: Indirect; network; effects; Dynamics; Competition (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:indorg:v:27:y:2009:i:3:p:346-357

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