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The Value of Incumbency When Platforms Face Heterogeneous Customers†

The Value of Incumbency When Platforms Face Heterogeneous Customers† AbstractWe 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. (JEL D43, D62, L13, L86) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

The Value of Incumbency When Platforms Face Heterogeneous Customers†

The Value of Incumbency When Platforms Face Heterogeneous Customers†

American Economic Journal: Microeconomics , Volume 12 (4) – Nov 1, 2020

Abstract

AbstractWe 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. (JEL D43, D62, L13, L86)

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Publisher
American Economic Association
Copyright
Copyright © 2020 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20180225
Publisher site
See Article on Publisher Site

Abstract

AbstractWe 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. (JEL D43, D62, L13, L86)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Nov 1, 2020

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