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

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  • Paul Heidhues
  • Nicolas Melissas

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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Bibliographic 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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