Dynamic Competition with Network Externalities: Why History Matters

Hanna Halaburda, Bruno Jullien and Yaron Yehezkel

No 16-636, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We consider dynamic competition among platforms in a market with network externalities. A platform that dominated the market in the previous period be- comes \focal" in the current period, in that agents play the equilibrium in which they join the focal platform whenever such equilibrium exists. Yet when faced with higher-quality competition, can a low-quality platform remain focal? In the nite-horizon case, the unique equilibrium is ecient for \patient" platforms; with an innite time horizon, however, there are multiple equilibria where ei- ther 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: L1 (search for similar items in EconPapers)
Date: 2016-03, Revised 2019-07
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Dynamic Competition with Network Externalities: Why History Matters (2016)
Working Paper: Dynamic Competition with Network Externalities: Why History Matters (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:30384

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