Learning and Collusion in New Markets with Uncertain Entry Costs
AbstractThis paper analyzes an entry timing game with uncertain entry costs. Two firms receive costless signals about the cost of a new project and decide when to invest. We characterize the equilibrium of the investment timing game with private and public signals. We show that competition leads the two firms to invest too early and analyze collusion schemes whereby one firm prevents the other firm from entering the market. We show that, in the efficient collusion scheme, the active firm must transfer a large part of the surplus to the inactive firm in order to limit preemption.
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Date of creation: 08 Nov 2011
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Learning; Preemption; Innovation; New Markets; Project Selection; Entry Costs; Collusion; Private Information; Market Uncertainty;
Other versions of this item:
- Francis Bloch & Simona Fabrizi & Steffen Lippert, 2011. "Learning and Collusion in New Markets with Uncertain Entry Costs," Working Papers 1112, University of Otago, Department of Economics, revised Dec 2011.
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- F - International Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-05 (All new papers)
- NEP-BEC-2011-12-05 (Business Economics)
- NEP-COM-2011-12-05 (Industrial Competition)
- NEP-CTA-2011-12-05 (Contract Theory & Applications)
- NEP-ENT-2011-12-05 (Entrepreneurship)
- NEP-EXP-2011-12-05 (Experimental Economics)
- NEP-GTH-2011-12-05 (Game Theory)
- NEP-IND-2011-12-05 (Industrial Organization)
- NEP-INO-2011-12-05 (Innovation)
- NEP-MIC-2011-12-05 (Microeconomics)
- NEP-MST-2011-12-05 (Market Microstructure)
- NEP-PPM-2011-12-05 (Project, Program & Portfolio Management)
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