Network dynamics : Heterogeneity, rationality and inertia

Network dynamics : Heterogeneity, rationality and inertia

Université de Rennes, CREM UMR CNRS 6211, France
ORCID : 0000-0001-6855-9984


Abstract : Revisiting the work of Farrell and Saloner (1985, 1986) on the processes of
technological adoption or choice of standard, this article analyzes the problems related to
the timing of decisions and deepens the study of the inertia effect in these situations. We
focus our analysis on the interaction of network effects and informational externalities
to show that the information revelation, through its backward and forward effects, can
in some cases eliminate inefficient inertia while all the literature on networks has mostly
focused on the bandwagon effects systematically giving rise to momentum behaviors or
more oftenly excessive inertia. In an incomplete information framework on agent preferences,
we add to our model the possibility of a transitional incompatibility situation as well
as any switching cost situation in such a way as to examine without bias and completely the
impact of the dissemination of information on the adoption decisions of agents. Finally,
some of our results on equilibrium strategies and optimality can be reinterpreted from the
point of view of the heterogeneity of the population, in terms of preferences or ability to
process information. Some types of agents that do not react to their environment will lead
to a bias in the decisions of sophisticated agents and influence in a « disproportionate »
way the result and the optimality of the game.

Keywords : network externality, informational externality, technology adoption, incomplete information, inertia, heterogeneity.

JEL Classification : C72, D62, D82.