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Dynamic Network Competition

Author

Listed:
  • Hanna Halaburda

    (Bank of Canada)

  • Bruno Jullien

    (Toulouse School of Economics)

  • Yaron Yehezkel

    (Tel Aviv University)

Abstract

This 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.

Suggested Citation

  • Hanna Halaburda & Bruno Jullien & Yaron Yehezkel, 2013. "Dynamic Network Competition," Working Papers 13-10, NET Institute.
  • Handle: RePEc:net:wpaper:1310
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    References listed on IDEAS

    as
    1. 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.
    2. repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
    3. Lopez, Angel L. & Rey, Patrick, 2009. "Foreclosing competition through access charges and price discrimination," IESE Research Papers D/801, IESE Business School.
    4. Markovich, Sarit, 2008. "Snowball: A dynamic oligopoly model with indirect network effects," Journal of Economic Dynamics and Control, Elsevier, vol. 32(3), pages 909-938, March.
    5. Hanna Hałaburda & Yaron Yehezkel, 2016. "The Role of Coordination Bias in Platform Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(2), pages 274-312, April.
    6. 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.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Calvano, Emilio & Polo, Michele, 2021. "Market power, competition and innovation in digital markets: A survey," Information Economics and Policy, Elsevier, vol. 54(C).

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