This paper examines the dynamic competition between platform firms in two-sided markets with network externalities. In our model, two platforms compete with each other via a contest to dominate a certain market. If one platform wins the contest, it can serve the market for a certain duration as a monopolistic platform. Our paper shows that platform firms can compensate for cost disadvantages with network effects. A head start (e.g., technological advantage) does not guarantee future success for platform firms. Network effects and cost efficiency are decisive for future success. Interestingly, higher costs of a platform can induce higher platform profits in our dynamic model. Moreover, we find that a platform’s size and profit are not necessarily positively correlated. Our model also provides new insights with respect to the underlying causes for the emergence of market dominance. The combination of technological carry-over and network effects can explain a long-lasting dominance of a platform that benefits from a head start. The necessary preconditions for this emergence are convex costs, small network effects and high carry-over.

中文翻译：

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双边市场平台竞争的动态竞争模型

本文考察了具有网络外部性的双边市场中平台公司之间的动态竞争。在我们的模型中，两个平台通过竞争来争夺某个市场。如果一个平台赢得比赛，它可以作为垄断平台为市场服务一段时间。我们的论文表明，平台公司可以通过网络效应弥补成本劣势。领先一步（例如，技术优势）并不能保证平台公司在未来取得成功。网络效应和成本效率是未来成功的决定性因素。有趣的是，在我们的动态模型中，更高的平台成本可以导致更高的平台利润。此外，我们发现平台的规模和利润不一定呈正相关。我们的模型还提供了有关市场支配地位出现的根本原因的新见解。技术遗留和网络效应的结合可以解释一个从领先优势中受益的平台的长期主导地位。这种出现的必要前提是成本凸出、网络效应小和结转率高。