IDEAS home Printed from https://ideas.repec.org/a/aea/aejmic/v12y2020i4p229-69.html

The Value of Incumbency When Platforms Face Heterogeneous Customers

Author

Listed:
  • Gary Biglaiser
  • Jacques Crémer

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.

Suggested Citation

  • Gary Biglaiser & Jacques Crémer, 2020. "The Value of Incumbency When Platforms Face Heterogeneous Customers," American Economic Journal: Microeconomics, American Economic Association, vol. 12(4), pages 229-269, November.
    • Handle: RePEc:aea:aejmic:v:12:y:2020:i:4:p:229-69
    DOI: 10.1257/mic.20180225
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/mic.20180225
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/mic.20180225.ds
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://libkey.io/10.1257/mic.20180225?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Biglaiser, Gary & Crémer, Jacques & Mantovani, Andrea, 2024. "The Economics of the Cloud," TSE Working Papers 24-1520, Toulouse School of Economics (TSE), revised 10 Jun 2026.
    2. Jullien, Bruno & Sand-Zantman, Wilfried, 2021. "The Economics of Platforms: A Theory Guide for Competition Policy," Information Economics and Policy, Elsevier, vol. 54(C).
    3. Robert Akerlof & Richard Holden & Luis Rayo, 2024. "Network Externalities and Market Dominance," Management Science, INFORMS, vol. 70(6), pages 4037-4050, June.
    4. Gary Biglaiser & Jacques Crémer & André Veiga, 2022. "Should I stay or should I go? Migrating away from an incumbent platform," RAND Journal of Economics, RAND Corporation, vol. 53(3), pages 453-483, September.
    5. Sarit Markovich & Yaron Yehezkel, 2024. "“For the public benefit”: Data policy in platform markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 33(3), pages 652-685, August.
    6. Carroni, Elias & Paolini, Dimitri, 2020. "Business models for streaming platforms: Content acquisition, advertising and users," Information Economics and Policy, Elsevier, vol. 52(C).
    7. Colin von Negenborn, 2023. "The more the merrier? On the optimality of market size restrictions," Review of Economic Design, Springer;Society for Economic Design, vol. 27(3), pages 603-634, September.
    8. Bruno Jullien & Alessandro Pavan & Marc Rysman, 2021. "Two-sided markets, pricing, and network effects," Post-Print hal-03828345, HAL.
    9. Zhang, Y., 2026. "Price Competition with Network Spillovers: Entry, Cohesiveness and Interoperability," Cambridge Working Papers in Economics 2634, Faculty of Economics, University of Cambridge.
    10. Andrei Hagiu & Julian Wright, 2023. "Data‐enabled learning, network effects, and competitive advantage," RAND Journal of Economics, RAND Corporation, vol. 54(4), pages 638-667, December.
    11. Elias Carroni & Leonardo Madio & Shiva Shekhar, 2024. "Superstar Exclusivity in Two-Sided Markets," Management Science, INFORMS, vol. 70(2), pages 991-1011, February.
    12. Sarit Markovich & Yaron Yehezkel, 2026. "Competing for Cookies: Platforms’ Business Models in Data Markets with Network Effects," Management Science, INFORMS, vol. 72(2), pages 915-931, February.
    13. N. M. Rozanova, 2025. "Digital Economy Cartels," Studies on Russian Economic Development, Springer, vol. 36(1), pages 135-140, February.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejmic:v:12:y:2020:i:4:p:229-69. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.