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Overcoming the Coordination Problem: Dynamic Formation of Networks

  • Jack Ochs
  • In-Uck Park

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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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 172782000000000046.

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Date of creation: 28 Mar 2005
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Handle: RePEc:cla:levrem:172782000000000046
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  12. Choi, J.P., 1994. "Herd behavior, the "Penguin effect", and the suppression of informational diffusion : An analysis of informational externalities and payoff interdependency," Discussion Paper 1994-62, Tilburg University, Center for Economic Research.
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  14. 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.
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  16. Leo K. Simon and Maxwell B. Stinchcombe., 1987. "Extensive Form Games in Continuous Time: Pure Strategies," Economics Working Papers 8746, University of California at Berkeley.
  17. Andreas Park & Lones Smith, 2004. "Caller Number Five: Timing Games that Morph From One Form to Another," 2004 Meeting Papers 871, Society for Economic Dynamics.
  18. Park In-Uck, 2004. "A Simple Inducement Scheme to Overcome Adoption Externalities," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-26, June.
  19. Admati, Anat R & Perry, Motty, 1991. "Joint Projects without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 259-76, April.
  20. 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.
  21. Dasgupta, Amil, 2007. "Coordination and delay in global games," Journal of Economic Theory, Elsevier, vol. 134(1), pages 195-225, May.
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