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

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Author Info
Paul Heidhues
Nicolas Melissas

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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 strategic complementarity. If it does, our model has a unique rationalizable outcome. Otherwise, there exists parameter values for which multiple equilibria arise because player have a strong incentive to invest at the same point in time others do.

ZUSAMMENFASSUNG - (Gleichgewichte in einem Dynamischen Globalen Spiel: Die Rolle von Kohorteneffekten)
Koordinationsspiele haben typischerweise multiple Nashgleichgewichte mit sich selbsterfüllenden Erwartungen. Die Theorie der globalen Spiele führt Unsicherheit und private Informationen in statischen Koordinationsspielen ein und zeigt die Bedingungen auf, unter denen dies zu einem eindeutigen Gleichgewicht führt. In diesem Beitrag untersuchen wir ein Zweiperiodenspiel, in welchem die Spieler eine irreversible Investitionsentscheidung mit einer positiven Netwerkexternalität treffen. In der ersten Periode wählen die Spieler, ob sie sofort investieren oder auf bessere Informationen über das Projekt warten. Wir zeigen, dass Kohorteneffekte bei Technologiewahlproblemen mit positiven Netzwerkexternalitäten auftreten und untersuchen ihre Auswirkungen. Kohorteneffekte führen dazu, dass die Intraperioden-Netzwerkeffekte größer sind als die Interperioden-Netzwerkeffekte. Aus technischer Sicht bestimmen die Kohorteneffekte, ob das globale Spiel die Eigenschaft der dynamischen strategischen Komplemantarität erfüllt. Diese Eigenschaft wiederum impliziert, dass unser Modell eine eindeutige rationalisierbare Lösung hat. Ist diese Eigenschaft nicht erfüllt, so hat jeder Spieler einen hohen Anreiz zum gleichen Zeitpunkt wie die andern Spieler zu investieren. In diesem Fall exstieren Parameterwerte für welche unser Spiel multiple Nashgleichgewichtslösungen hat.

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Publisher Info
Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number SP II 2003-08.

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Length: 48 pages
Date of creation: Jul 2003
Date of revision:
Publication status: Published in Economic Theory, Vol. 28(3), 2006, pp. 531-557.
Handle: RePEc:wzb:wzebiv:spii2003-08

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Related research
Keywords: Global Game; Strategic Waiting; Coordination; Strategic Complementarities; Period-specific Network Effects; Equilibrium Selection;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

Cited by:
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  1. Hikmet Gunay, 2008. "The role of externalities and information aggregation in market collapse," Economic Theory, Springer, vol. 35(2), pages 367-379, May. [Downloadable!] (restricted)
  2. Barbieri, Stefano & Mattozzi, Andrea, 2004. "Membership in Citizen Groups," Working Papers 1206, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  3. Eugen Kovac & Jakub Steiner, 2008. "Reversibility in Dynamic Coordination Problems," ESE Discussion Papers 183, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
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  4. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2004. "Information Dynamics and Equilibrium Multiplicity in Global Games of Regime Change," NBER Working Papers 11017, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Toxvaerd, Flavio, 2007. "Strategic Merger Waves: A Theory of Musical Chairs," CEPR Discussion Papers 6159, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Xavier Vives, 2009. "Strategic complementarity in multi-stage games," Economic Theory, Springer, vol. 40(1), pages 151-171, July. [Downloadable!] (restricted)
    Other versions:
  7. Amil Dasgupta & Jakub Steiner & Colin Stewart, 2007. "Efficient Dynamic Coordination with Individual Learning," Working Papers tecipa-301, University of Toronto, Department of Economics. [Downloadable!]
    Other versions:
  8. Christian Hellwig, 2004. "Dynamic Global Games of Regime Change: Learning, Multiplicity and Timing of Attacks (August 2006, with George-Marios Angeletos and Alessandro Pavan)," UCLA Economics Online Papers 279, UCLA Department of Economics. [Downloadable!]
  9. Kentaro Hatsumi, 2009. "A Coordination Game Model of Charitable Giving and Seed Money Effect," ISER Discussion Paper 0736r, Institute of Social and Economic Research, Osaka University, revised Sep 2009. [Downloadable!]
  10. Kentaro Hatsumi, 2009. "A Coordination Game Model of Charitable Giving and Seed Money Effect," ISER Discussion Paper 0736, Institute of Social and Economic Research, Osaka University. [Downloadable!]
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