Conventional telephones are frequently breaking down or overloaded, and it takes months to get a new line installed. Companies are thinking of adopting new parallel wireless system offered by private company, which for now can poorly and sporadically interconnect with local conventional phones, but can connect to phones in other countries. Now suppose that company decisions about investing in this system depend positively on the number of other firms expected to be users, and that there a total of 2 million firms in less developed.
a. Why might such a positive relationship make sense intuitively?
b. How would you characterize equilibria in this settings?
c now suppose that a certain number of companies, A, will invest in this parallel system no matter how many other firms do in less developed. Why this make sense given the description of the problem above.
d. Now specifically suppose that above and beyond this number A, if x
2
Companies are expected to invest, then [ X / 10,000 ] additional companies will invest. This relationship holds up until the point at which all companies in less developed invest.
Calculate the largest value that A can take before there is just one equilibrium, OR, equally acceptable, show how you would find an answer by illustrating the problem.