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Learning and Collusion in New Markets with Uncertain Entry Costs

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Author Info

  • Francis Bloch

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)

  • Simona Fabrizi

    (Massey University - SIERC)

  • Steffen Lippert

    (University of Otago - Department of Economics)

Abstract

This 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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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00639049.

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Date of creation: 08 Nov 2011
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Handle: RePEc:hal:wpaper:hal-00639049

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Related research

Keywords: Learning; Preemption; Innovation; New Markets; Project Selection; Entry Costs; Collusion; Private Information; Market Uncertainty;

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  1. Keller, Godfrey & Rady, Sven, 1999. "Optimal Experimentation in a Changing Environment," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 475-507, July.
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  7. Hugo A. Hopenhayn & Francesco Squintani, 2011. "Preemption Games with Private Information," Review of Economic Studies, Oxford University Press, vol. 78(2), pages 667-692.
  8. Masako Ueda, 2004. "Banks versus Venture Capital: Project Evaluation, Screening, and Expropriation," Journal of Finance, American Finance Association, vol. 59(2), pages 601-621, 04.
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  13. repec:fth:coluec:549 is not listed on IDEAS
  14. Fabrizi, Simona & Lippert, Steffen & Norback, Pehr-Johan & Persson, Lars, 2007. "Venture Capitalists, Asymmetric Information and Ownership in the Innovation Process," MPRA Paper 6265, University Library of Munich, Germany.
  15. Moldovanu, Benny & Sela, Aner, 1999. "The Optimal Allocation of Prizes in Contests," Sonderforschungsbereich 504 Publications 99-75, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
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  17. Harris, Christopher & Vickers, John, 1985. "Perfect Equilibrium in a Model of a Race," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 193-209, April.
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