A Simple Inducement Scheme to Overcome Adoption Externalities
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In-Uck Park
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 ``cutoff strategy'' profiles constitute the set of profiles uniquely implementable under an inducement scheme. We derive the ex ante cost of implementing each such profile and characterize simple inducement schemes of the following form that implement it: each scheme specifies a fixed fee that every adopter pays, and a fixed gross subsidy/prize to be randomly allocated to the adopters. We discuss the implications of these findings on the design of optimal schemes for different network organizers. We extend the analysis to preference revelation mechanisms and prove a revenue equivalence result and characterize optimal mechanisms, but find that unique implementation is no longer possible.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Advances Article
- Policy Advice with Imperfectly Informed Experts
- Backward Induction and Model Deterioration
- Contributions Article
- Search and Bargaining in Large Markets With Homogeneous Traders
- To Make or Buy: An Allocation of Attention
- A Simple Inducement Scheme to Overcome Adoption Externalities
- Optimal Dynamic Portfolio Risk with First-Order and Second-Order Predictability
- Uniform Proofs of Order Independence for Various Strategy Elimination Procedures
- Players With Limited Memory
- Precedents and Timing: A Strategic Analysis of Multi-Plaintiff Litigation
- Optimal Auctions with Endogenous Entry
- Topics Article
- Multiple-Object Auctions Around a Circle
- Market Size and Vertical Equilibrium in the Context of Successive Cournot Oligopolies
- Trade and Linked Exchange; Price Discrimination Through Transaction Bundling
- A Sequential Signaling Model of the Sale of an Invention to an Oligopolist
- Vertical Differentiation, Asymmetric Information and Endogenous Bank Screening
- Patent Renewal Fees and Self-Funding Patent Offices
- Imitation and Long Run Outcomes
- Counterfactual Reasoning and Common Knowledge of Rationality in Normal Form Games
- Unraveling of Information: Competition and Uncertainty
- A Theory of Vague Expected Utility
- Sequential Decision-Making and Asymmetric Equilibria: An Application to Takeovers
