Dynamic Oligopoly with Network Effects
We study the dynamics of an oligopoly market with network externalities. In contrast to earlier work, we consider a model where products are vertically differentiated and the number of firms is arbitrary. We show that the degree of network externalities has a one-to-one relationship with the number of firms that can survive. Moreover, we show that the market may overvalue high quality products, in the sense that the market equilibrium might lead to higher market shares for the high quality product than the planner would choose. We show that even in a world with linear demand, the market shares of three firms can cycle
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