Dynamic Network Competition
AbstractThis paper considers a dynamic platform competition in a market with network externalities. We ask two research questions. The first one asks how the beliefs advantage carries over in time, and whether a low-quality platform can maintain its focal position along time. We show that for very high and very low discount factors it is possible for the low-quality platform to maintain its focal position indefinitely. But for the intermediate discount factor the higher quality platform wins and keeps the market. The second question asks what drives changes in the market leadership along time (observed in many markets, like smartphones and video-game consoles), and how such changes can be supported as a dynamic equilibrium outcome. We offer two explanations. The first explanation relies on intrinsic equilibrium uncertainty. The second explanation relies on the adoption of technology. One could expect such change in the market leader to be a sign of intense competition between platforms. However, we find that changes in leadership indicate softer price competition.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 13-10.
Length: 22 pages
Date of creation: Sep 2013
Date of revision:
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Web page: http://www.NETinst.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-05 (All new papers)
- NEP-COM-2013-10-05 (Industrial Competition)
- NEP-MIC-2013-10-05 (Microeconomics)
- NEP-NET-2013-10-05 (Network Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bruno Jullien, 2011. "Competition in Multi-sided Markets: Divide and Conquer," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 186-220, November.
- Lopez, Angel & Rey, Patrick, 2009.
"Foreclosing Competition through Access Charges and Price Discrimination,"
TSE Working Papers
09-056, Toulouse School of Economics (TSE), revised Feb 2012.
- Lopez, Angel & Rey, Patrick, 2009. "Foreclosing Competition through Access Charges and Price Discrimination," IDEI Working Papers 570, Institut d'Économie Industrielle (IDEI), Toulouse, revised Feb 2012.
- Ángel L. López & Patrick Rey, 2009. "Foreclosing Competition through Access Charges and Price Discrimination," Working Papers 2009.99, Fondazione Eni Enrico Mattei.
- Lopez, Angel L. & Rey, Patrick, 2009. "Foreclosing competition through access charges and price discrimination," IESE Research Papers D/801, IESE Business School.
- Andrei Hagiu, 2006. "Pricing and Commitment by Two-Sided Platforms," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 720-737, Autumn.
- Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
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