Local Interactions and Switching Costs
We study the impact of swtiching costs on the long run outcome in 2x2 conordination games played in the circular city model oflocal interactions. For low levels of switiching costs the predictions are in line with the previous literature and the risk dominant convention is the unique long run equilibrium. For intermediate levels of switching costs the set oflong run equilibria still contain the risk dominant convention but may also contain conventions that are not risk dominant. For high levels of switching costs also non-monomorphic states will be included in the set of long run equilibria. Finally, we reconcile our result with a recent paper by Norman (2009) by considering the case of large interaction neighborhoods in large populations.
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