The Incumbency Advantage In The Digital Era: Why Data Barriers Matter

I adopt a three stage game to describe the interaction between data driven effects and cross group network externalities in the competition among two homogeneous platforms. I show that, if users singlehome and hold pessimistic beliefs on new entrants, the existence of data cost synergies provides to incumbents an advantage that translates in positive profits. When beliefs are symmetric, as data renders competition fiercer, firms might subsidize their users excessively, incurring both in negative profits, with aggregate innovation levels reaching the maximum. Antitrust authorities should consider how data reshape the competition and the incumbency advantage in digital industries.