The Value of Incumbency in Heterogeneous Platforms

54 Pages Posted: 18 Apr 2016

See all articles by Gary Biglaiser

Gary Biglaiser

University of North Carolina

Jacques Cremer

Toulouse School of Economics

Multiple version iconThere are 2 versions of this paper

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

Biglaiser, Gary and Cremer, Jacques, The Value of Incumbency in Heterogeneous Platforms (March 2016). CEPR Discussion Paper No. DP11207, Available at SSRN: https://ssrn.com/abstract=2766535

Gary Biglaiser (Contact Author)

University of North Carolina ( email )

Chapel Hill, NC 27599
United States
919-966-4884 (Phone)
919-966-4986 (Fax)

Jacques Cremer

Toulouse School of Economics ( email )

1 Esplanade de l'Université
Toulouse Cedex 06, 31080
France

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