Dynamic Competition with Network Externalities: Why History Matters

Hanna Halaburda, Bruno Jullien and Yaron Yehezkel

No 5847, CESifo Working Paper Series from CESifo

Abstract: We consider dynamic competition among platforms in a market with network externalities. A platform that dominated the market in the previous period becomes “focal” in the current period, in that agents play the equilibrium in which they adopt the focal platform whenever such equilibrium exists. Yet when faced with higher-quality competition, can a low-quality platform remain focal? In the finite-horizon case, the unique equilibrium is efficient for “patient” platforms; with an infinite time horizon, however, there are multiple equilibria where either the low- or high-quality platform dominates. If qualities are stochastic, the platform with a better average quality wins with a higher probability, even when its realized quality is lower, and this probability increases as platforms become more patient. Hence social welfare may decline as platforms become more forward looking.

Keywords: network externalities; dynamic competition; coordination (search for similar items in EconPapers)
JEL-codes: L10 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp5847.pdf (application/pdf)

Related works:
Working Paper: Dynamic Competition with Network Externalities: Why History Matters (2019)
Working Paper: Dynamic Competition with Network Externalities: Why History Matters (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5847

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().