Working Paper: CEPR ID: DP4995
Authors: Paul Heidhues; Nicolas Melissas
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.
Keywords: coordination; equilibrium selection; global game; period-specific network effects; strategic complementarities; strategic waiting
JEL Codes: C72; C73; D82; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cohort effects (C92) | investment timing (G11) |
| contemporaneous network effects (D85) | early mover benefits (D43) |
| dynamic increasing differences (C69) | unique rationalizable outcome (D80) |
| late mover cohort effects (C92) | multiple equilibria (D50) |
| cohort effects (C92) | decision-making (D70) |
| individual signals (C29) | collective investment behavior (G41) |