Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/130473
Authors: 
Halaburda, Hanna
Jullien, Bruno
Yehezkel, Yaron
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper 5847
Abstract: 
We consider dynamic competition among platforms in a market with network externalities. 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 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.
Subjects: 
network externalities
dynamic competition
coordination
JEL: 
L10
Document Type: 
Working Paper

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