Focality Advantage in Platform Competition

Hanna Halaburda, Bank of Canada; New York University (NYU); CESifo (Center for Economic Studies and Ifo Institute) and Yaron Yehezkel, Coller School of Management , Tel-Aviv University explain Advantage in Platform Competition.

ABSTRACT: We consider a methodology for studying how beliefs shape platform competition, based on the notion of a partial focality. The concept of focality is useful for modeling platform competition when the presence of network effects results in multiple equilibria for a certain set of prices. We illustrate how to implement this methodology in both static and dynamic competition between platforms that differ in their basic quality. The initial degree of focality affects the ability of the high-quality platform to win the market. Yet, dynamic considerations may have positive or negative effect on this ability.