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.
Biglaiser, Gary, and Jacques Crémer.
"The Value of Incumbency When Platforms Face Heterogeneous Customers."
American Economic Journal: Microeconomics,
Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
Oligopoly and Other Imperfect Markets
Information and Internet Services; Computer Software