Local interactions under switching costs

Ge Jiang and Simon Weidenholzer
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Ge Jiang: Nanjing University

Economic Theory, 2017, vol. 64, issue 3, No 6, 588 pages

Abstract: Abstract We study the impact of switching costs on the long-run outcome in $$2\times 2$$ 2 × 2 coordination games played in the circular city model of local interactions. For low levels of switching costs, the predictions are in line with the previous literature and the risk-dominant convention is the unique long-run equilibrium. For intermediate levels of switching costs, the set of long-run equilibria still contain the risk-dominant convention but may also contain conventions that are not risk dominant. The set of long-run equilibria may further be non-monotonic in the level of switching costs, i.e., as switching costs increase the prediction that the risk-dominant convention is the unique long-run equilibrium and the prediction that both conventions are long-run equilibria alternate. Finally, for high levels of switching costs, also non-monomorphic states will be included in the set of long-run equilibria.

Keywords: Switching costs; Local interactions; Learning; Coordination games (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s00199-016-1002-3

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