DP4995 Equilibria in a Dynamic Global Game: The Role of Cohort Effects
|Author(s):||Paul Heidhues, Nicolas Melissas|
|Publication Date:||April 2005|
|Keyword(s):||coordination, equilibrium selection, global game, period-speciifc network effects, strategic complementarities, strategic waiting|
|JEL(s):||C72, C73, D82, D83|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=4995|
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.