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The value of incumbency in heterogeneous platforms

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  • Crémer, Jacques
  • Biglaiser, Gary

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

  • Crémer, Jacques & Biglaiser, Gary, 2016. "The value of incumbency in heterogeneous platforms," CEPR Discussion Papers 11207, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11207
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Hanna Halaburda & Yaron Yehezkel, 2019. "Focality advantage in platform competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(1), pages 49-59, January.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    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.
    8. 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.

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    More about this item

    Keywords

    Network externalities; Network effects; Plaforms;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • 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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