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Equilibria in a Dynamic Global Game: The Role of Cohort Effects

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  • Heidhues, Paul
  • Melissas, Nicolas

Abstract

We introduce strategic waiting in a global game setting with irreversible investment. Players can wait in order to make a better informed decision. We allow for cohort effects and discuss when they arise endogenously in technology adoption problems with positive contemporaneous network effects. Formally, cohort effects lead to intra-period network effects being greater than inter-period network effects. Depending on the nature of the cohort effects, the dynamic game may or may not satisfy dynamic increasing differences. If it does, our model has a unique rationalizable outcome. Otherwise, there exist parameter values for which multiple equilibria arise because players have a strong incentive to invest at the same point in time others do.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4995.

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Date of creation: Apr 2005
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Handle: RePEc:cpr:ceprdp:4995

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Related research

Keywords: coordination; equilibrium selection; global game; period-speciifc network effects; strategic complementarities; strategic waiting;

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