The Value of Incumbency When Platforms Face Heterogeneous Customers

Gary Biglaiser and Jacques Crémer

American Economic Journal: Microeconomics, 2020, vol. 12, issue 4, 229-69

Abstract: We study competition for the market in a dynamic model with network externalities, focusing on the efficiency of market outcomes. We propose a representation of the strategic advantages of incumbency and embed it in a dynamic framework with heterogeneous consumers. Then, we completely identify the conditions under which inefficient equilibria with several platforms emerge at equilibrium; explore the reasons why these inefficient equilibria arise; and compute the value of incumbency and analyze why static models generally exaggerate it.

JEL-codes: D43 D62 L13 L86 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmic:v:12:y:2020:i:4:p:229-69

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DOI: 10.1257/mic.20180225

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