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Endogenous Timing of Actions under Conflict between Two Types of Second Mover Advantage

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Young-Ro Yoon () (Indiana University Bloomington)

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Abstract

In a model, two players, heterogeneous in their information quality, compete with each other with perfect information about the other player's information quality. If they can decide their timings of actions endogenously, the less-informed player has an incentive to delay her action for learning. On the other hand, the more-informed player wants to delay her action to prevent her information from being revealed, not to enable her to learn. The conflict of these two types of second mover advantages yields a war of attrition. Although both players can benefit from acting as the follower, the gain from a delay for learning is greater than that for preventing the other's learning. Therefore, a cost for the delay in action plays an important role in characterizing the equilibrium. In contrast to the literature, in which only informational externalities are considered, this article shows that the introduction of payoff externalities contributes to different procedures and reasoning processes through which the heterogeneous players' timings of actions are decided endogenously.

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Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2007-013.

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Length: 24 pages
Date of creation: Jul 2007
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Handle: RePEc:inu:caeprp:2007013

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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  1. Chamley, Christophe & Gale, Douglas, 1994. "Information Revelation and Strategic Delay in a Model of Investment," Econometrica, Econometric Society, vol. 62(5), pages 1065-85, September. [Downloadable!] (restricted)
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  2. Josh Lerner, 2002. "150 Years of Patent Protection," American Economic Review, American Economic Association, vol. 92(2), pages 221-225, May. [Downloadable!]
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  3. Jean O. Lanjouw & Iain Cockburn, 2000. "Do Patents Matter?: Empirical Evidence after GATT," NBER Working Papers 7495, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Frisell, Lars, 2003. " On the Interplay of Informational Spillovers and Payoff Externalities," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 582-92, Autumn.
  5. Petra Moser, 2003. "How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World Fairs," NBER Working Papers 9909, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Jianbo Zhang, 1997. "Strategic Delay and the Onset of Investment Cascades," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 188-205, Spring. [Downloadable!] (restricted)
  7. Rob, Rafael, 1991. "Learning and Capacity Expansion under Demand Uncertainty," Review of Economic Studies, Blackwell Publishing, vol. 58(4), pages 655-75, July. [Downloadable!] (restricted)
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  1. Eric Rasmusen & Young-Ro Yoon, 2008. "First versus Second-Mover Advantage with Information Asymmetry about the Size of New Markets," Working Papers 2008-15, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
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