“The value of incumbency in heterogeneous networks” by Jacques Crémer
Toulouse and HKU
University of North Carolina
We study the consequences of the heterogeneity of the intensity of the consequences of network effects on the utility of consumers in a dynamic model with free entry and an incumbent monopolist. Even though in a static environment, the profit maximizing incumbent would sell only to the consumers who value network effects, we prove that the presence of consumers who attach a low value to network effects increases its profits. Indeed, their presence hinders entrants who find it more costly to attract the more valuable "high taste for networks" consumers.