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  4. November 2020
  5. The Value of Incumbency When Platforms Face Heterogeneous Customers

The Value of Incumbency When Platforms Face Heterogeneous Customers

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Abstract

We study competition for the market in a dynamic model with network externalities, focusing on the efficiency of market outcomes. We propose a representation of the strategic advantages of incumbency and embed it in a dynamic framework with heterogeneous consumers. Then, we completely identify the conditions under which inefficient equilibria with several platforms emerge at equilibrium; explore the reasons why these inefficient equilibria arise; and compute the value of incumbency and analyze why static models generally exaggerate it.

Citation

Biglaiser, Gary, and Jacques Crémer. 2020. "The Value of Incumbency When Platforms Face Heterogeneous Customers." American Economic Journal: Microeconomics, 12 (4): 229-69. DOI: 10.1257/mic.20180225

Additional Materials

JEL Classification

  • D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
  • D62 Externalities
  • L13 Oligopoly and Other Imperfect Markets
  • L86 Information and Internet Services; Computer Software
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