How to Avoid Monopoly: Connectivity and Market Share

We consider dynamic competition between two platforms in a market with network externalities. In a framework with exogenous connectivity, there exists a unique symmetric equilibrium point when the strength of network externalities is lower than a threshold. When the strength exceeds an upper threshold, one platform captures almost the entire market at the equilibrium state. Furthermore, we analyze the role of endogenous connectivity: We find that the market share of any platform will not exceed the golden ratio , and social welfare is improved when connectivity cost is low.