| This paper analyzes the effects of network externalities on an incumbent's advantage in a duopoly models where an entrant and an incumbent strategically set prices. A Global Games approach is used as an equilibrium refinement, where consumers receive both a public and a private signal about the entrant's quality. While a unique equilibrium is not guaranteed in all of the cases, the incumbent's advantage arises in specific cases depending on the relative precision of the signals. As an extension, I show in a model of endogenous advertisement choice that the multiple equilibria problem is resolved because the entrant prefers an advertisement level which makes the private signal precise enough to generate a unique equilibrium. |
