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Clustering in N-Player Preemption Games

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  • Rossella Argenziano
  • Philipp Schmidt-Dengler

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Abstract

We study a complete information preemption game in continuous time. A finite number of firms decide when to make an irreversible, observable investment. Upon investment, a firm receives flow profits which decrease in the number of firms that have invested. The cost of investment declines over time exogenously. We characterize the subgame-perfect equilibrium outcome, which is unique up to a permutation of players. When the preemption race among late investors is sufficiently intense, the preemption incentive for earlier investors disappears, and two or more investments occur at the same time. We identify a sufficient condition in terms of model parameters: clustering of investments occurs if the flow profits from consecutive investments are sufficiently close. This shows how clustering can occur in the absence of coordination failures, informational spillovers or positive payoff externalities.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 741.

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Date of creation: 01 Sep 2012
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Handle: RePEc:esx:essedp:741

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  1. Leo K. Simon and Maxwell B. Stinchcombe., 1987. "Extensive Form Games in Continuous Time: Pure Strategies," Economics Working Papers 8746, University of California at Berkeley.
  2. Gale, D. & Chamley, C., 1992. "Information Revelation and Strategic Delay in a Model of Investment," Papers 10, Boston University - Department of Economics.
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  7. Bobtcheff, Catherine & Mariotti, Thomas, 2010. "Potential Competition in Preemption Games," TSE Working Papers 10-140, Toulouse School of Economics (TSE).
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  16. Mason, Robin & Weeds, Helen, 2010. "Investment, uncertainty and pre-emption," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 278-287, May.
  17. Mills, David E, 1991. "Untimely Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 39(6), pages 659-70, December.
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Cited by:
  1. Barbos, Andrei, 2013. "De-synchronized clocks in preemption games with risky prospects," Mathematical Social Sciences, Elsevier, vol. 65(3), pages 203-216.

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