Dynamic Competition with Network Externalities: Why History Matters

Halaburda, Hanna, Jullien, Bruno and Yehezkel, Yaron (2016) Dynamic Competition with Network Externalities: Why History Matters. TSE Working Paper, n. 16-636, Toulouse

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Official URL: http://tse-fr.eu/pub/30384

Abstract

We consider dynamic competition among platforms in a market with network
externalities. A platform that dominated the market in the previous period be-
comes \focal" in the current period, in that agents play the equilibrium in which
they join the focal platform whenever such equilibrium exists. Yet when faced
with higher-quality competition, can a low-quality platform remain focal? In the
nite-horizon case, the unique equilibrium is ecient for \patient" platforms;
with an innite time horizon, however, there are multiple equilibria where ei-
ther the low- or high-quality platform dominates. If qualities are stochastic,
the platform with a better average quality wins with a higher probability, even
when its realized quality is lower, and this probability increases as platforms
become more patient. Hence social welfare may decline as platforms become
more forward looking.

Item Type: Monograph (Working Paper)
Language: English
Date: March 2016
Place of Publication: Toulouse
Uncontrolled Keywords: network externalities, dynamic competition, coordination
JEL codes: L1 - Market Structure, Firm Strategy, and Market Performance
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 07 Jun 2016 13:08
Last Modified: 20 Aug 2019 10:21
OAI ID: oai:tse-fr.eu:30384
URI: http://publications.ut-capitole.fr/id/eprint/20417

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