Incumbency advantage and its value

Résumé

Markets with network effects are typically concentrated. The aim of this paper is to discuss some recent work on “incumbency advantage.” That is, the fact that firms already installed generate higher profits than entrants even if the latter offer identical or even better terms (in terms of price and quality) to consumers. In particular, we review recently known sources of the advantage and potential mitigating factors and point to a number of open issues.