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 exter- nalities. A platform that dominated the market in the previous period becomes \focal" in the current period, in that agents play the equilibrium in which they adopt the focal platform whenever such equilibrium exists. Yet when faced with higher-quality competition, can a low-quality platform remain focal? In the finite-horizon case, the unique equilibrium is efficient for \patient" platforms; with an infinite time horizon, however, there are multiple equilibria where either the lowor 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: 17 May 2019 14:54
OAI ID: oai:tse-fr.eu:30384
URI: http://publications.ut-capitole.fr/id/eprint/20417

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