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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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.

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  • Dynamic competition with network externalities: how history matters. (deposited 22 Apr 2020 09:52)