Migration Between Platforms

Abstract

We develop a model of dynamic platform formation under positive platform externalities. Users can switch between an incumbent and entrant platforms, switching opportunities arise stochastically and users can choose whether to accept or reject an opportunity to switch. For homogeneous users, we characterize the incumbency advantage implied by a given equilibrium realization of the switching process. For linear utility, incumbency advantage increases in the mean and dispersion of the incumbent's share during the switching process, which captures the momentum and coordination of the process. Heterogeneity in preferences may lead some users to delay their switching or never switch at all. Assuming that switching opportunities arrive according to a Poisson process, users switch to the entrant platform if the average preference favours the entrant and if preferences are not too polarized. We also demonstrate that if there is some uncertainty about the existence of the entrant’s platform, then as the time when consumers can switch platforms gets small, no consumer leaves the incumbent’s platform unless it is a dominant strategy to leave no matter what other consumers do.