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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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  10. In-Uck Park, 2003. "A Simple Inducement Scheme to Overcome Adoption Externalities," The Centre for Market and Public Organisation 03/085, Department of Economics, University of Bristol, UK.
  11. 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.
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  14. Gale, Douglas, 1995. "Dynamic Coordination Games," Economic Theory, Springer, vol. 5(1), pages 1-18, January.
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  17. Avinash Dixit, 2003. "Clubs with Entrapment," American Economic Review, American Economic Association, vol. 93(5), pages 1824-1829, December.
  18. Dybvig, Philip H. & Spatt, Chester S., 1983. "Adoption externalities as public goods," Journal of Public Economics, Elsevier, vol. 20(2), pages 231-247, March.
  19. Bagnoli, Mark & Lipman, Barton L, 1989. "Provision of Public Goods: Fully Implementing the Core through Private Contributions," Review of Economic Studies, Wiley Blackwell, vol. 56(4), pages 583-601, October.
  20. Jay Pil Choi, 1997. "Herd Behavior, the 'Penguin Effect,' and the Suppression of Informational Diffusion: An Analysis of Informational Externalities and Payoff Interdependency," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 407-425, Autumn.
  21. Christophe Chamley, 1999. "Coordinating Regime Switches," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 869-905, August.
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