The Value of Incumbency in Heterogeneous Platforms
54 Pages Posted: 18 Apr 2016
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The Value of Incumbency in Heterogeneous Platforms
Date Written: March 2016
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.
Keywords: network effects, network externalities, plaforms
JEL Classification: L12, L13, L86
Suggested Citation: Suggested Citation
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The Value of Incumbency in Heterogeneous Platforms
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