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A Way To Sell Goods With Network Externalities

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  • Tatsuhiro SHICHIJO
  • Yuji NAKAYAMA
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    Abstract

    There are a lot of goods which have network externalities. While the number of players who have such a good is small, they may not get enough utility from the goods. That is, players have an incentive to delay their decision, when they purchase the goods with network externalities. Delay causes negative effects on players' utility, so equilibrium with delay is inefficient. We propose a way to settle this problem using a kind of call option. If we use the way and some conditions are satisfied, all players purchase the good and the delay decreases in equilibrium

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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 711.

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    Date of creation: 11 Aug 2004
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    Handle: RePEc:ecm:feam04:711

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    Keywords: Network externality; strategic delay; coordination game;

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    1. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
    2. Toshihiro Matsumura & Masako Ueda, 1996. "Endogenous timing in the switching of technology with Marshallian externalities," Journal of Economics, Springer, vol. 63(1), pages 41-56, February.
    3. Gale, D., 1992. "Dynamic Coordiantion Games," Papers 13, Boston University - Department of Economics.
    4. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
    5. James E. Rauch, 1993. "Does History Matter Only When it Matters Little? The Case of City-Indu try Location," NBER Working Papers 4312, National Bureau of Economic Research, Inc.
    6. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    7. Nicholas Economides, 1997. "The Economics of Networks," Industrial Organization 9701002, EconWPA.
    8. Amil Dasgupta, 2000. "Social Learning with Payoff Complementarities," Econometric Society World Congress 2000 Contributed Papers 0322, Econometric Society.
    9. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
    10. Joseph Farrell & Garth Saloner, 1984. "Standardization, Compatibility and Innovation," Working papers 345, Massachusetts Institute of Technology (MIT), Department of Economics.
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