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Overcoming the coordination problem: Dynamic formation of networks

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  • Ochs, Jack
  • Park, In-Uck

Abstract

We analyze a multi-period entry game among privately informed agents who differ with respect to the number of agents who must enter in order for their own entry to be profitable. In each period agents who have not yet joined decide whether to subscribe to a network. There exists a unique equilibrium that approximates any symmetric equilibrium arbitrarily closely as the discount factor approaches one. This resolves the coordination problem. Ex-post efficiency is necessarily achieved asymptotically as the population size grows large. These results do not hold if subscribers can reverse their decisions without cost.

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  • Ochs, Jack & Park, In-Uck, 2010. "Overcoming the coordination problem: Dynamic formation of networks," Journal of Economic Theory, Elsevier, vol. 145(2), pages 689-720, March.
  • Handle: RePEc:eee:jetheo:v:145:y:2010:i:2:p:689-720
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    Cited by:

    1. 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.
    2. Greaker, Mads & Midttømme, Kristoffer, 2016. "Network effects and environmental externalities: Do clean technologies suffer from excess inertia?," Journal of Public Economics, Elsevier, vol. 143(C), pages 27-38.
    3. Gary Biglaiser & Jacques Crémer, 2016. "The Value of Incumbency in Heterogeneous Platforms," CESifo Working Paper Series 5829, CESifo Group Munich.
    4. Heggedal, Tom-Reiel & Helland, Leif, 2014. "Platform selection in the lab," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 168-177.
    5. Gary Biglaiser & Jacques CreÌ mer & AndreÌ Veiga, 2013. "Migration Between Platforms," Working Papers 13-18, NET Institute.
    6. Aoyagi, Masaki, 2013. "Coordinating adoption decisions under externalities and incomplete information," Games and Economic Behavior, Elsevier, vol. 77(1), pages 77-89.
    7. Alexei Parakhonyak & Nick Vikander, 2013. "Optimal Sales Schemes for Network Goods," Discussion Papers 13-11, University of Copenhagen. Department of Economics.
    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. Biglaiser, Gary & Crémer, Jacques, 2016. "The value of incumbency in heterogeneous platforms," CEPR Discussion Papers 11207, C.E.P.R. Discussion Papers.
    10. Matthews, Steven A., 2013. "Achievable outcomes of dynamic contribution games," Theoretical Economics, Econometric Society, vol. 8(2), May.
    11. Masaki Aoyagi, 2010. "Optimal Sales Schemes against Interdependent Buyers," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 150-182, February.
    12. Chen, Ying-Ju & Zenou, Yves & Zhou, Junjie, 2015. "Competitive pricing strategies in social networks," CEPR Discussion Papers 10857, C.E.P.R. Discussion Papers.
    13. Masaki Aoyagi, 2010. "Monopoly Sale of a Network Good," ISER Discussion Paper 0794, Institute of Social and Economic Research, Osaka University.
    14. 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.
    15. Biglaiser, Gary & Crémer, Jacques, 2016. "The value of incumbency for heterogeneous platforms," TSE Working Papers 16-630, Toulouse School of Economics (TSE), revised Nov 2016.
    16. Edward Cartwright, 2007. "On the Emergence of Social Norms," Studies in Economics 0704, School of Economics, University of Kent.
    17. 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.
    18. 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).
    19. 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.

    More about this item

    Keywords

    Strategic complementarity Network externality Coordination;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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