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Overcoming the Coordination Problem: Dynamic Formation of Networks

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  • Ochs, Jack
  • Park, In-Uck

Abstract

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.

Suggested Citation

  • Ochs, Jack & Park, In-Uck, 2004. "Overcoming the Coordination Problem: Dynamic Formation of Networks," CEI Working Paper Series 2004-18, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hitcei:2004-18
    Note: July, 2004
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    References listed on IDEAS

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    More about this item

    Keywords

    Strategic complementarity; network externality; coordina-tion;
    All these keywords.

    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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