IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-02945972.html
   My bibliography  Save this paper

Incumbency advantage and its value

Author

Listed:
  • Gary Biglaiser

    (UNC - University of North Carolina [Chapel Hill] - UNC - University of North Carolina System)

  • Emilio Calvano

    (UNIBO - Alma Mater Studiorum Università di Bologna = University of Bologna)

  • Jacques Crémer

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

Markets with network effects are typically concentrated. The aim of this paper is to discuss some recent work on "incumbency advantage." That is, the fact that firms already installed generate higher profits than entrants even if the latter offer identical or even better terms (in terms of price and quality) to consumers. In particular, we review recently known sources of the advantage and potential mitigating factors and point to a number of open issues.

Suggested Citation

  • Gary Biglaiser & Emilio Calvano & Jacques Crémer, 2019. "Incumbency advantage and its value," Post-Print hal-02945972, HAL.
    • Handle: RePEc:hal:journl:hal-02945972
    DOI: 10.1111/jems.12307
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Attila Ambrus & Emilio Calvano & Markus Reisinger, 2016. "Either or Both Competition: A "Two-Sided" Theory of Advertising with Overlapping Viewerships," American Economic Journal: Microeconomics, American Economic Association, vol. 8(3), pages 189-222, August.
    2. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring.
    3. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
    4. 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.
    5. Luís Cabral, 2011. "Dynamic Price Competition with Network Effects," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(1), pages 83-111.
    6. Ochs, Jack & Park, In-Uck, 2010. "Overcoming the coordination problem: Dynamic formation of networks," Journal of Economic Theory, Elsevier, vol. 145(2), pages 689-720, March.
    7. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-337, May.
    8. Simon P. Anderson & Øystein Foros & Hans Jarle Kind, 2018. "Competition for Advertisers and for Viewers in Media Markets," Economic Journal, Royal Economic Society, vol. 128(608), pages 34-54, February.
    9. Cabral, Luis M B & Riordan, Michael H, 1994. "The Learning Curve, Market Dominance, and Predatory Pricing," Econometrica, Econometric Society, vol. 62(5), pages 1115-1140, September.
    10. Jullien, Bruno & Halaburda, Hanna & Yehezkel, Yaron, 2016. "Dynamic Competition with Network Externalities: Why History Matters," CEPR Discussion Papers 11205, C.E.P.R. Discussion Papers.
    11. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 33, pages 2145-2220, Elsevier.
    12. K. J. Arrow, 1971. "The Economic Implications of Learning by Doing," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 11, pages 131-149, Palgrave Macmillan.
    13. 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.
    14. Jens Prüfer & Christoph Schottmüller, 2021. "Competing with Big Data," Journal of Industrial Economics, Wiley Blackwell, vol. 69(4), pages 967-1008, December.
    15. Yeon-Koo Che & Johannes Hörner, 2018. "Recommender Systems as Mechanisms for Social Learning," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(2), pages 871-925.
    16. Liebowitz, S J & Margolis, Stephen E, 1990. "The Fable of the Keys," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 1-25, April.
    17. Imke Reimers & Benjamin R. Shiller, 2018. "Proprietary Data, Competition, and Consumer Effort: An Application to Telematics in Auto Insurance," Working Papers 119, Brandeis University, Department of Economics and International Business School.
    18. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
    19. Hanna Halaburda & Yaron Yehezkel, 2013. "Platform Competition under Asymmetric Information," American Economic Journal: Microeconomics, American Economic Association, vol. 5(3), pages 22-68, August.
    20. Simon P. Anderson & Øystein Foros & Hans Jarle Kind, 2018. "Competition for Advertisers and for Viewers in Media Markets," Economic Journal, Royal Economic Society, vol. 128(608), pages 34-54, February.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    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. Sarit Markovich & Yaron Yehezkel, 2019. "Group Hug: Platform Competition with User-groups," Working Papers 19-04, NET Institute.
    3. Graef, Inge & Prüfer, Jens, 2021. "Governance of data sharing: A law & economics proposal," Research Policy, Elsevier, vol. 50(9).
    4. Katz, Michael L., 2021. "Big Tech mergers: Innovation, competition for the market, and the acquisition of emerging competitors," Information Economics and Policy, Elsevier, vol. 54(C).
    5. Jin, Ginger Zhe & Wagman, Liad, 2021. "Big data at the crossroads of antitrust and consumer protection," Information Economics and Policy, Elsevier, vol. 54(C).
    6. Yassine Lefouili & Leonardo Madio, 2022. "The economics of platform liability," European Journal of Law and Economics, Springer, vol. 53(3), pages 319-351, June.
    7. Argentesi, Elena & Buccirossi, Paolo & Calvano, Emilio & Duso, Tomaso & Marrazzo, Alessia & Nava, Salvatore, 2021. "Merger Policy in Digital Markets: An Ex Post Assessment," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 17(1), pages 95-140.
    8. 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.
    9. Calvano, Emilio & Polo, Michele, 2021. "Market power, competition and innovation in digital markets: A survey," Information Economics and Policy, Elsevier, vol. 54(C).
    10. Peitz, Martin, 2020. "Economic policy for digital attention intermediaries," ZEW Discussion Papers 20-035, ZEW - Leibniz Centre for European Economic Research.
    11. Lester T. Chan, 2021. "Divide and conquer in two‐sided markets: A potential‐game approach," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 839-858, December.
    12. Jiatao Li & Liang Chen & Jingtao Yi & Jiye Mao & Jianwen Liao, 2019. "Ecosystem-specific advantages in international digital commerce," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(9), pages 1448-1463, December.
    13. Carroni, Elias & Paolini, Dimitri, 2020. "Business models for streaming platforms: Content acquisition, advertising and users," Information Economics and Policy, Elsevier, vol. 52(C).
    14. Yiquan Gu & Leonardo Madio & Carlo Reggiani, 2019. "Exclusive Data, Price Manipulation and Market Leadership," CESifo Working Paper Series 7853, CESifo.
    15. Afilipoaie, Adelaida & Donders, Karen & Ballon, Pieter, 2022. "The European Commission's approach to mergers involving software-based platforms: Towards a better understanding of platform power," Telecommunications Policy, Elsevier, vol. 46(5).
    16. Shekhar, Shiva, 2020. "Zero Pricing Platform Competition," MPRA Paper 99364, University Library of Munich, Germany.
    17. Giovannetti, Emanuele & Siciliani, Paolo, 2023. "Platform Competition and Incumbency Advantage under Heterogeneous Lock-in effects," Information Economics and Policy, Elsevier, vol. 63(C).
    18. Siciliani, Paolo & Giovannetti, Emanuele, 2019. "Platform competition and incumbency advantage under heterogeneous switching cost — exploring the impact of data portability," Bank of England working papers 839, Bank of England.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Calvano, Emilio & Polo, Michele, 2021. "Market power, competition and innovation in digital markets: A survey," Information Economics and Policy, Elsevier, vol. 54(C).
    2. Jullien, Bruno & Pavan, Alessandro & Rysman, Marc, 2021. "Two-sided Markets, Pricing, and Network Effects," TSE Working Papers 21-1238, Toulouse School of Economics (TSE).
    3. Jullien, Bruno & Sand-Zantman, Wilfried, 2021. "The Economics of Platforms: A Theory Guide for Competition Policy," Information Economics and Policy, Elsevier, vol. 54(C).
    4. 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.
    5. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    6. Argentesi, Elena & Buccirossi, Paolo & Calvano, Emilio & Duso, Tomaso & Marrazzo, Alessia & Nava, Salvatore, 2021. "Merger Policy in Digital Markets: An Ex Post Assessment," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 17(1), pages 95-140.
    7. Mark J. Tremblay, 2019. "Platform Competition and Endogenous Switching Costs," Journal of Industry, Competition and Trade, Springer, vol. 19(4), pages 537-559, December.
    8. Siciliani, Paolo & Giovannetti, Emanuele, 2019. "Platform competition and incumbency advantage under heterogeneous switching cost — exploring the impact of data portability," Bank of England working papers 839, Bank of England.
    9. den Hartigh, E. & Langerak, F. & Commandeur, H.R., 2002. "The Effects of Self-Reinforcing Mechanisms on Firm Performance," ERIM Report Series Research in Management ERS-2002-46-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    10. Tanjim Hossain & Dylan Minor & John Morgan, 2011. "Competing Matchmakers: An Experimental Analysis," Management Science, INFORMS, vol. 57(11), pages 1913-1925, November.
    11. Thomas D. Jeitschko & Mark J. Tremblay, 2020. "Platform Competition With Endogenous Homing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(3), pages 1281-1305, August.
    12. Biglaiser, Gary & Crémer, Jacques, 2016. "The value of incumbency for heterogeneous platforms," TSE Working Papers 16-630, Toulouse School of Economics (TSE), revised Nov 2016.
    13. Jullien, Bruno & Pavan, Alessandro, 2013. "Platform Pricing under Dispersed Information," IDEI Working Papers 793, Institut d'Économie Industrielle (IDEI), Toulouse.
    14. 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.
    15. Paul Belleflamme & Martin Peitz, 2018. "Platforms and network effects," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume II, chapter 11, pages 286-317, Edward Elgar Publishing.
    16. Alexei Parakhonyak & Nick Vikander, 2019. "Optimal Sales Schemes for Network Goods," Management Science, INFORMS, vol. 65(2), pages 819-841, February.
    17. Oz Shy, 2011. "A Short Survey of Network Economics," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(2), pages 119-149, March.
    18. Aoyagi, Masaki, 2018. "Bertrand competition under network externalities," Journal of Economic Theory, Elsevier, vol. 178(C), pages 517-550.
    19. Daniel Birke, 2009. "The Economics Of Networks: A Survey Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 23(4), pages 762-793, September.
    20. Heli Koski & Tobias Kretschmer, 2004. "Survey on Competing in Network Industries: Firm Strategies, Market Outcomes, and Policy Implications," Journal of Industry, Competition and Trade, Springer, vol. 4(1), pages 5-31, March.

    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:hal:journl:hal-02945972. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    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.