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Overcoming the Coordination Problem: Dynamic Formation of Networks

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  • Ochs, Jack
  • Park, In-Uck

Abstract

We analyze an entry game with multiple periods. In each period privately informed agents who have not yet joined decide whether to subscribe to a network. Subscribers derive benefits in future periods depending on the network size. We study the case where agents are sufficiently patient and show that there exists a unique symmetric equilibrium if the number of existing subscribers is common knowledge in each period. This resolves the coordination problem which is prevalent in markets with network externalities.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/13905/1/wp2004-18a.pdf
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Bibliographic Info

Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2004-18.

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Length: 20 p.
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:hit:hitcei:2004-18

Note: July, 2004
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Keywords: Strategic complementarity; network externality; coordina-tion;

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References

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  1. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275, Cowles Foundation for Research in Economics, Yale University.
  2. Joseph Farrell and Garth Saloner., 1988. "Coordination through Committees and Markets," Economics Working Papers 8864, University of California at Berkeley.
  3. Gale, Douglas, 1995. "Dynamic Coordination Games," Economic Theory, Springer, vol. 5(1), pages 1-18, January.
  4. Jay Pil Choi, 1997. "Herd Behavior, the 'Penguin Effect,' and the Suppression of Informational Diffusion: An Analysis of Informational Externalities and Payoff Interdependency," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 407-425, Autumn.
  5. In-Uck Park, 2003. "A Simple Inducement Scheme to Overcome Adoption Externalities," The Centre for Market and Public Organisation 03/085, Department of Economics, University of Bristol, UK.
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  7. Heidhues, Paul & Melissas, Nicolas, 2005. "Equilibria in a Dynamic Global Game: The Role of Cohort Effects," CEPR Discussion Papers 4995, C.E.P.R. Discussion Papers.
  8. Paul Klemperer & Jeremy Bulow, 1999. "The Generalized War of Attrition," Game Theory and Information 9901004, EconWPA.
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  10. Michael Ostrovsky & Michael Schwarz, 2005. "Adoption of Standards Under Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 816-832, Winter.
  11. Simon, Leo K. & Stinchcombe, Maxwell B., 1987. "Extensive From Games in Continuous Time: Pure Strategies," Department of Economics, Working Paper Series qt03x115sh, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  12. Bagnoli, Mark & Lipman, Barton L, 1989. "Provision of Public Goods: Fully Implementing the Core through Private Contributions," Review of Economic Studies, Wiley Blackwell, vol. 56(4), pages 583-601, October.
  13. Dasgupta, Amil, 2007. "Coordination and delay in global games," Journal of Economic Theory, Elsevier, vol. 134(1), pages 195-225, May.
  14. Carlsson, H. & Damme, E.E.C. van, 1993. "Global games and equilibrium selection," Open Access publications from Tilburg University urn:nbn:nl:ui:12-154416, Tilburg University.
  15. Christophe Chamley, 1999. "Coordinating Regime Switches," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 869-905, August.
  16. Bliss, Christopher & Nalebuff, Barry, 1984. "Dragon-slaying and ballroom dancing: The private supply of a public good," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 1-12, November.
  17. Marx, Leslie M & Matthews, Steven A, 2000. "Dynamic Voluntary Contribution to a Public Project," Review of Economic Studies, Wiley Blackwell, vol. 67(2), pages 327-58, April.
  18. Admati, Anat R & Perry, Motty, 1991. "Joint Projects without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 259-76, April.
  19. Andreas Park & Lones Smith, 2006. "Caller Number Five: Timing Games that Morph from One Form to Another," Cowles Foundation Discussion Papers 1554, Cowles Foundation for Research in Economics, Yale University.
  20. Avinash Dixit, 2003. "Clubs with Entrapment," American Economic Review, American Economic Association, vol. 93(5), pages 1824-1829, December.
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Citations

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Cited by:
  1. Matthews, Steven A., 2013. "Achievable outcomes of dynamic contribution games," Theoretical Economics, Econometric Society, vol. 8(2), May.
  2. Masaki Aoyagi, 2005. "Optimal Sales Schemes against Interdependent Buyers," ISER Discussion Paper 0645, Institute of Social and Economic Research, Osaka University.
  3. Gary Biglaiser & Jacques CreÌmer & AndreÌ Veiga, 2013. "Migration Between Platforms," Working Papers 13-18, NET Institute.
  4. Steven A. Matthews, 2006. "Smooth Monotone Contribution Games," PIER Working Paper Archive 06-018, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  5. COLLA, Paolo & GARCIA, Filomena, 2004. "Technology adoption with forward looking agents," CORE Discussion Papers 2004041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Greaker, Mads & Midttømme, Kristoffer, 2013. "Optimal Environmental Policy with Network Effects: Is Lock-in in Dirty Technologies Possible?," Memorandum 15/2013, Oslo University, Department of Economics.
  7. Steven A. Matthews, 2008. "Achievable Outcomes in Smooth Dynamic Contribution Games," PIER Working Paper Archive 08-028, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  8. Steven A. Matthews, 2008. "Achievable Outcomes of Dynamic Contribution Games, Second Version," PIER Working Paper Archive 11-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 20 Jun 2011.
  9. Masaki Aoyagi, 2010. "Monopoly Sale of a Network Good," ISER Discussion Paper 0794, Institute of Social and Economic Research, Osaka University.
  10. Alexei Parakhonyak & Nick Vikander, 2013. "Optimal Sales Schemes for Network Goods," Discussion Papers 13-11, University of Copenhagen. Department of Economics.
  11. Heggedal, Tom-Reiel & Helland, Leif, 2014. "Platform selection in the lab," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 168-177.
  12. Aoyagi, Masaki, 2013. "Coordinating adoption decisions under externalities and incomplete information," Games and Economic Behavior, Elsevier, vol. 77(1), pages 77-89.
  13. Mads Greaker & Kristoffer Midttømme, 2014. "Optimal Environmental Policy with Network Effects: Will Pigovian Taxation Lead to Excess Inertia?," CESifo Working Paper Series 4759, CESifo Group Munich.

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