Cumulative Leadership and Entry Dynamics
AbstractThis paper investigates the combined impact of a first-mover advantage and of firms' limited mobility on the equilibrium outcomes of a continuous-time model adapted from by Boyer, Lasserre, and Moreaux (2007). Two firms face market development uncertainty and may enter by investing in lumpy capacity units. With perfect mobility, when the first entrant plays as aStackelberg leader a Markov perfect preemption equilibrium obtains in which the leader invests earlier, and the follower later, than in the Cournot benchmark scenario. There is rent equalization, and the two firms' equilibrium value is lower. This result is not robust to the introduction of firm-specific limited mobility constraints. If one firm is sufficiently less able than its rival to mobilize resources at early stages of the market development process, there is less rent dissipation, and no equalization, in a constrained preemption equilibrium. The first-mover advantage on the product market then results in more value for the less constrained firm, and in less value for the follower than when they play 'a la Cournot with perfect mobility. The leading firm maximizes value by entering immediately before its constrained rival, though later than made possible by its superior mobility. Greater uncertainty reduces the value differential to the benefit of thefollower. It also increases the distance between the firms' respective investment triggers. The specifications and results are discussed in light of recent developments in the market for music downloads.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by HAL in its series Post-Print with number halshs-00371847.
Date of creation: 2009
Date of revision:
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00371847
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/
Real options; Preemption; First-mover advantage; Mobility;
Other versions of this item:
- Bruno Versaevel, 2009. "Cumulative Leadership and Entry Dynamics," Working Papers, Groupe d'Analyse et de ThÃ©orie Economique (GATE), Centre national de la recherche scientifique (CNRS), UniversitÃ© Lyon 2, Ecole Normale SupÃ©rieure 0906, Groupe d'Analyse et de ThÃ©orie Economique (GATE), Centre national de la recherche scientifique (CNRS), UniversitÃ© Lyon 2, Ecole Normale SupÃ©rieure.
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nalin Kulatilaka & Enrico C. Perotti, 1998. "Strategic Growth Options," Management Science, INFORMS, INFORMS, vol. 44(8), pages 1021-1031, August.
- Luca Colombo & Paola Labrecciosa, 2004.
"When Stackelberg and Cournot Equilibria Coincide,"
Trinity Economics Papers, Trinity College Dublin, Department of Economics
20043, Trinity College Dublin, Department of Economics.
- Colombo Luca & Labrecciosa Paola, 2008. "When Stackelberg and Cournot Equilibria Coincide," The B.E. Journal of Theoretical Economics, De Gruyter, De Gruyter, vol. 8(1), pages 1-7, January.
- Boyer, Marcel & Lasserre, Pierre & Mariotti, Thomas & Moreaux, Michel, 2004. "Preemption and rent dissipation under price competition," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 22(3), pages 309-328, March.
- Hoppe, Heidrun C., 2000. "Second-mover advantages in the strategic adoption of new technology under uncertainty," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 18(2), pages 315-338, February.
- Gilbert, Richard & Harris, Richard G., 1984.
"Competition with Lumpy Investment,"
Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley
qt11v5q20z, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Pawlina, G. & Kort, P.M., 2001.
"Real Options in an Aymmetric Duopoly: Who Benefits from your Competitive Disadvantage,"
Discussion Paper, Tilburg University, Center for Economic Research
2001-95, Tilburg University, Center for Economic Research.
- Grzegorz Pawlina & Peter M. Kort, 2006. "Real Options in an Asymmetric Duopoly: Who Benefits from Your Competitive Disadvantage?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 1-35, 03.
- Edward C. Prescott & Michael Visscher, 1977. "Sequential Location among Firms with Foresight," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 8(2), pages 378-393, Autumn.
- Driver, Ciaran & Temple, Paul & Urga, Giovanni, 2008. "Real options -- delay vs. pre-emption: Do industrial characteristics matter?," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(2), pages 532-545, March.
- Anderson, Simon P & Engers, Maxim, 1994. "Strategic Investment and Timing of Entry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 833-53, November.
- Marcel Boyer & Pierre Lasserre & Michel Moreaux, 2007. "The Dynamics of Industry Investments," CIRANO Working Papers 2007s-09, CIRANO.
- Grenadier, Steven R, 1996. " The Strategic Exercise of Options: Development Cascades and Overbuilding in Real Estate Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 51(5), pages 1653-79, December.
- J.J.J. Thijssen & K.J.M. Huisman & P.M. Kort, 2003.
"The Effects of Information on Strategic Investment and Welfare,"
Trinity Economics Papers, Trinity College Dublin, Department of Economics
200310, Trinity College Dublin, Department of Economics.
- Jacco Thijssen & Kuno Huisman & Peter Kort, 2006. "The effects of information on strategic investment and welfare," Economic Theory, Springer, Springer, vol. 28(2), pages 399-424, 06.
- Mason, Robin & Weeds, Helen, 2010. "Investment, uncertainty and pre-emption," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 28(3), pages 278-287, May.
- Anderson, Simon P. & Engers, Maxim, 1992. "Stackelberg versus Cournot oligopoly equilibrium," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 10(1), pages 127-135, March.
- Fudenberg, Drew & Tirole, Jean, 1987. "Understanding Rent Dissipation: On the Use of Game Theory in Industrial Organization," American Economic Review, American Economic Association, vol. 77(2), pages 176-83, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.