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Discussion Paper Details

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Title: Equilibria in a Dynamic Global Game: The Role of Cohort Effects

Author(s): Paul Heidhues and Nicolas Melissas

Publication Date: April 2005

Keyword(s): coordination, equilibrium selection, global game, period-speciifc network effects, strategic complementarities and strategic waiting

Programme Area(s): Industrial Organization

Abstract: We introduce strategic waiting in a global game setting with irreversible investment. Players can wait in order to make a better informed decision. We allow for cohort effects and discuss when they arise endogenously in technology adoption problems with positive contemporaneous network effects. Formally, cohort effects lead to intra-period network effects being greater than inter-period network effects. Depending on the nature of the cohort effects, the dynamic game may or may not satisfy dynamic increasing differences. If it does, our model has a unique rationalizable outcome. Otherwise, there exist parameter values for which multiple equilibria arise because players have a strong incentive to invest at the same point in time others do.

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Bibliographic Reference

Heidhues, P and Melissas, N. 2005. 'Equilibria in a Dynamic Global Game: The Role of Cohort Effects'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4995