Discussion paper

DP4995 Equilibria in a Dynamic Global Game: The Role of Cohort Effects

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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Citation

Heidhues, P and N Melissas (eds) (2005), “DP4995 Equilibria in a Dynamic Global Game: The Role of Cohort Effects”, CEPR Press Discussion Paper No. 4995. https://cepr.org/publications/dp4995