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Overcoming the coordination problem: Dynamic formation of networks

  • Ochs, Jack
  • Park, In-Uck

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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File URL: http://www.sciencedirect.com/science/article/pii/S0022-0531(09)00148-3
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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 145 (2010)
Issue (Month): 2 (March)
Pages: 689-720

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Handle: RePEc:eee:jetheo:v:145:y:2010:i:2:p:689-720
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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