Investment decisions and coordination problems in a market with network externalities: An experimental study

Vincent Mak and Rami Zwick ()

Journal of Economic Behavior & Organization, 2010, vol. 76, issue 3, 759-773

Abstract: We study decision-making and the associated coordination problems in an experimental setting with network externalities. Subjects decide simultaneously in every round how much to invest out of a fixed endowment; the gain from an investment increases with total investment, so that an investment is profitable iff total investment exceeds a critical mass. The game has multiple, Pareto-ranked equilibria; we find that whether first-round total investment reaches critical mass predicts convergence towards the Pareto optimal full-investment equilibrium. Moreover, first-round investments and equilibrium convergence vary with critical mass and group size in a complex way that is explicable by subtle effects of strategic uncertainty on decision making.

Keywords: Network; externalities; Critical; mass; Coordination; Strategic; uncertainty; Multi-person; game; Experimental; economics (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (9)

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Working Paper: Investment Decisions and Coordination Problems in a Market with Network Externalities: An Experimental Study (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:76:y:2010:i:3:p:759-773

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