A Simple Inducement Scheme to Overcome Adoption Externalities

In-Uck Park

The Centre for Market and Public Organisation from The Centre for Market and Public Organisation, University of Bristol, UK

Abstract: Potential customers of network commodities face coordination problems due to adoption externalities that give rise to multiple, Pareto-ranked equilibria. We investigate the extent to which the coordination problem can be resolved by inducement schemes when agents’ preferences are private information. Specifically, we show that all symmetric “cut-off strategy” profiles (agents adopt if and only if their type is below a threshold) constitute the set of profiles that can be implemented as a unique equilibrium under an inducement scheme. We derive the ex ante cost of implementing each such profile. Furthermore, we fully characterize the set of inducement schemes that I) implement each such profile and ii) have the following simple form: each scheme specifies a fixed fee that every adopter pays, and a fixed gross subsidy/prize to be randomly allocated to (or evenly split among) the adopters. We discuss the implications of these findings on the design of optimal schemes for different network organizers, namely, private entrepreneurs and public entities.

Keywords: adoption externality; coordination; inducement scheme (search for similar items in EconPapers)
JEL-codes: D82 H23 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2003-06
New Economics Papers: this item is included in nep-mfd and nep-net
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Citations: View citations in EconPapers (4)

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Journal Article: A Simple Inducement Scheme to Overcome Adoption Externalities (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:bri:cmpowp:03/085

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