Markets where network externalities play a key role are commonly found. In manycinrcumstances, the utility agents derive from consuming one good is increasing in theamount of agents choosing the same good. One example is the purchase of iPhonesor smartphones with Android: the larger is the number of iPhone users, the largeris the supply of apps and accessories designed to iPhone, and thus the higher is thewillingness to consume this good. Due to this sort of strategic complementarities inagents' decisions, models that describe the behavior of consumers when there are networkexternalities usually present multiple equilibria. Although there is much work ineconomics interested in network effects, little research has been done concerning equilibriumselection in this kind of environment. Instead, authors often assume that agentsmanage to coordinate in the Pareto efficient equilibrium, which does not seem to bea reasonable assumption since consumers make decentralized purchase choices. Thisproject aims to fill this gap, building upon the previous literature on equilibrium selectionin dynamic games, adapting those models to the context of Industrial Organizationand including elements such as heterogeneity in agents' preferences. By providing anequilibrium selection device applicable to these models, our study can contribute to theunderstanding of networks externalities, technological standards adoption, competitionamong platforms in two-sided markets, among others.
News published in Agência FAPESP Newsletter about the scholarship: