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Adaptive Expectation for Network Goods

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Arnut Paothong and G.S. Ladde

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 Abstract With regard to the network goods, the customer’s utility is affected by the network size. However, from asymmetric information, customers speculate the network size through their expectations. From literature, the rational and static expectations are commonly studied. This paper employs a well-known expectation type, called adaptive expectation, into a network good in the discrete time framework. Moreover, several properties of equilibrium point are investigated such as location, stability, oscillation, and initial point. Key result is that the properties of equilibrium point depend on the type of expectation.

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Network externality, Adaptive expectation, Fixed point theorem, Stability JEL Classification: D01, D11, D84, D85