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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
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    Citations

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    Cited by:

    1. Jullien, Bruno & Sand-Zantman, Wilfried, 2021. "The Economics of Platforms: A Theory Guide for Competition Policy," Information Economics and Policy, Elsevier, vol. 54(C).
    2. 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.
    3. 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.
    4. Carroni, Elias & Paolini, Dimitri, 2020. "Business models for streaming platforms: Content acquisition, advertising and users," Information Economics and Policy, Elsevier, vol. 52(C).
    5. Bruno Jullien & Alessandro Pavan & Marc Rysman, 2021. "Two-sided markets, pricing, and network effects," Post-Print hal-03828345, HAL.

    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

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