Investment Decisions and Coordination Problems in a Market with Network Externalities: An Experimental Study

Vincent Mak () and Rami Zwick ()
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Vincent Mak: CAM - University of Cambridge [UK]

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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; C72; C92; D62 (search for similar items in EconPapers)
Date: 2010-11-30
Note: View the original document on HAL open archive server: https://hal.science/hal-00911829v1
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Citations: View citations in EconPapers (8)

Published in Journal of Economic Behavior and Organization, 2010, 76 (3), pp.759. ⟨10.1016/j.jebo.2010.08.017⟩

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Journal Article: 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:hal:journl:hal-00911829

DOI: 10.1016/j.jebo.2010.08.017

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