The Value of Incumbency When Platforms Face Heterogeneous Customers

Gary Biglaiser and Jacques Crémer
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Gary Biglaiser: UNC - University of North Carolina [Chapel Hill] - UNC - University of North Carolina System
Jacques Crémer: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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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.

Date: 2020-11
Note: View the original document on HAL open archive server: https://hal.science/hal-03049041v1
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Citations: View citations in EconPapers (7)

Published in American Economic Journal: Microeconomics, 2020, 12 (4), pp.229-269. ⟨10.1257/mic.20180225⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03049041

DOI: 10.1257/mic.20180225

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