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The Value of Incumbency in Heterogeneous Platforms

Author

Listed:
  • Gary Biglaiser
  • Jacques Crémer

Abstract

We study the dynamics of competition in a model with network effects, an incumbent and entry. We propose a new way of representing the strategic advantages of incumbency in a static model. We then embed this static analysis in a dynamic framework with heterogeneous consumers. We completely identify the conditions under which inefficient equilibria with two platforms will emerge at equilibrium; explore the reasons why these inefficient equilibria arise; and compute the profits of the incumbent when there is only one platform at equilibrium.

Suggested Citation

  • Gary Biglaiser & Jacques Crémer, 2016. "The Value of Incumbency in Heterogeneous Platforms," CESifo Working Paper Series 5829, CESifo.
    • Handle: RePEc:ces:ceswps:_5829
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp5829.pdf
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    References listed on IDEAS

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    1. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-1672, September.
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    6. Rossella Argenziano, 2008. "Differentiated networks: equilibrium and efficiency," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 747-769, September.
    7. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107627314.
    8. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107016040.
    9. Caillaud, Bernard & Jullien, Bruno, 2003. "Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    10. Hanna Halaburda & Yaron Yehezkel, 2013. "Platform Competition under Asymmetric Information," American Economic Journal: Microeconomics, American Economic Association, vol. 5(3), pages 22-68, August.
    11. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107638105.
    12. Halaburda, Hanna & Jullien, Bruno & Yehezkel, Yaron, 2016. "Dynamic Competition with Network Externalities: Why History Matters," TSE Working Papers 16-636, Toulouse School of Economics (TSE), revised Jul 2019.
    13. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107016057.
    14. Rossella Argenziano, 2008. "Differentiated networks: equilibrium and efficiency," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 747-769.
    15. repec:hrv:faseco:4589709 is not listed on IDEAS
    16. Joseph E. Harrington Jr & Yannis Katsoulacos (ed.), 2012. "Recent Advances in the Analysis of Competition Policy and Regulation," Books, Edward Elgar Publishing, number 14933.
    17. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107674165.
    18. Biglaiser, Gary & Crémer, Jacques & Dobos, Gergely, 2013. "The value of switching costs," Journal of Economic Theory, Elsevier, vol. 148(3), pages 935-952.
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    Citations

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    Cited by:

    1. Hanna Halaburda & Bruno Jullien & Yaron Yehezkel, 2020. "Dynamic competition with network externalities: how history matters," RAND Journal of Economics, RAND Corporation, vol. 51(1), pages 3-31, March.
    2. Joao Correia‐da‐Silva & Bruno Jullien & Yassine Lefouili & Joana Pinho, 2019. "Horizontal mergers between multisided platforms: Insights from Cournot competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(1), pages 109-124, January.
    3. Johannes Loh & Tobias Kretschmer, 2023. "Online communities on competing platforms: Evidence from game wikis," Strategic Management Journal, Wiley Blackwell, vol. 44(2), pages 441-476, February.
    4. Hanna Halaburda & Yaron Yehezkel, 2019. "Focality advantage in platform competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(1), pages 49-59, January.
    5. Gastón Llanes & Andrea Mantovani & Francisco Ruiz-Aliseda, 2019. "Entry into Complementary Good Markets with Network Effects," Strategy Science, INFORMS, vol. 4(4), pages 262-282, December.
    6. David Besanko & Ulrich Doraszelski & Yaroslav Kryukov, 2017. "How Efficient is Dynamic Competition? The Case of Price as Investment," NBER Working Papers 23829, National Bureau of Economic Research, Inc.
    7. Doraszelski, Ulrich & Besanko, David & Kryukov, Yaroslav, 2017. "How Efficient is Dynamic Competition? The Case of Price as Investment," CEPR Discussion Papers 12279, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    network effect; network externalities; platforms;
    All these keywords.

    JEL classification:

    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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