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Coordination Through Committees and Markets

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  • Joseph Farrell and Garth Saloner.

Abstract

We discuss three common mechanisms for achieving coordination, with particular reference to the choice of compatibility standards. The first involves explicit communication and negotiation before irrevocable choices are made: It represents what standardization committees do. The second mechanism, by contrast, involves no explicit communication and depends on unilateral irrevocable choices: It succeeds if one agent chooses first and the other(s) follow(s). This is a simple version of "market leadership." We analyze these two mechanisms in a simple model and show that the committee is more likely to achieve coordination. Moreover, although the committee is slower, it outperforms the market mechanism, even when we allow for the value of speed. Third, we examine a hybrid of the first two mechanisms, in which both communication and unilateral preemptive actions are allowed. We show that, far from worsening its performance, unilateral actions improve the committee system. This hybrid system more closely resembles the committee system, the more important coordination is relative to conflict.
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Suggested Citation

  • Joseph Farrell and Garth Saloner., 1987. "Coordination Through Committees and Markets," Economics Working Papers 8740, University of California at Berkeley.
  • Handle: RePEc:ucb:calbwp:8740
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    References listed on IDEAS

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    1. Buiter,Willem H. & Marston,Richard C., 1986. "International Economic Policy Coordination," Cambridge Books, Cambridge University Press, number 9780521337809, December.
    2. Cooper, Richard N., 1985. "Economic interdependence and coordination of economic policies," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 23, pages 1195-1234 Elsevier.
    3. Patrick J. Kehoe, 1986. "International policy cooperation may be undesirable," Staff Report 103, Federal Reserve Bank of Minneapolis.
    4. Miller, Marcus & Salmon, Mark, 1985. "Dynamic Games and the Time Inconsistency of Optimal Policy in Open Economies," Economic Journal, Royal Economic Society, vol. 95(380a), pages 124-137, Supplemen.
    5. Frankel, Jeffrey A. & Stock, James H., 1987. "Regression vs. volatility tests of the efficiency of foreign exchange markets," Journal of International Money and Finance, Elsevier, pages 49-56.
    6. William H. Branson, 1986. "The Limits of Monetary Coordination As Exchange Rate Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(1), pages 175-194.
    7. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
    8. Jeffrey A. Frankel, 1986. "The Sources of Disagreement Among International Macro Models and Implications for Policy Coordination," NBER Working Papers 1925, National Bureau of Economic Research, Inc.
    9. Hamada, Koichi, 1976. "A Strategic Analysis of Monetary Interdependence," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 677-700, August.
    10. Canzoneri, Matthew B & Gray, Jo Anna, 1985. "Monetary Policy Games and the Consequences of Non-cooperative Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 547-564, October.
    11. Ishii, Naoko & McKibbin, Warwick & Sachs, Jeffrey, 1985. "The economic policy mix, policy cooperation, and protectionism: Some aspects of macroeconomic interdependence among the United States, Japan, and other OECD countries," Journal of Policy Modeling, Elsevier, vol. 7(4), pages 533-572.
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