Focality advantage in platform competition

Abstract

Abstract We consider a methodology for studying how beliefs shape platform competition based on the notion of a partial focality. The concept of focality is useful for modeling platform competition when the presence of network effects results in multiple equilibria for a certain set of prices. We illustrate how to implement this methodology in both static and dynamic competition between platforms that differ in their basic quality. The initial degree of focality affects the ability of the high‐quality platform to win the market. Yet, dynamic considerations may have a positive or negative effect on this ability.