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Learning and Capacity Expansion under Demand Uncertainty

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  • Rafael Rob

Abstract

A competitive, dynamic model of entry into a new industry is set up and both its positive and normative aspects are studied. The main assumptions are that entry is sequential, that it occurs under imperfect information on the size of the market and that better information becomes available as time goes on. The gradual improvement in information is due to the fact that later waves of entrants are able to observe the profitability of earlier entrants. The major results reported here (under suitable restrictions) are that the equilibrium rate of entry is monotonically decreasing over time, and that—at any given point in time—it is smaller than the socially optimal one.

Suggested Citation

  • Rafael Rob, 1991. "Learning and Capacity Expansion under Demand Uncertainty," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(4), pages 655-675.
  • Handle: RePEc:oup:restud:v:58:y:1991:i:4:p:655-675.
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    File URL: http://hdl.handle.net/10.2307/2297826
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