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First versus Second-Mover Advantage with Information Asymmetry about the Size of New Mark

Author

Listed:
  • Eric Rasmusen

    (Indiana University)

  • Young-Ro Yoon

    (University of Konstanz)

Abstract

Is it better to move first, or second| to innovate, or to imitate? Suppose one player has superior information about which of two new markets is better. If he enters first, he might be able to secure a natural monopoly. (The less-informed player also has this motive.) If he enters second, he can prevent the other player from imitating him. We find, predictably, that the more accurate the informed player's information the more he wants to delay in order to prevent the spillover of his information. Also, the less accurate the informed player's information the more he wants to move first in order to foreclose a market. In addition, the bigger the difference in markets, the more likely the two players will make the same choice. More surprisingly, if the informed player's information becomes more accurate that can hurt both industry profits and consumer welfare by inducing both players to choose what they hope is the bigger market, leaving the other market not served.

Suggested Citation

  • Eric Rasmusen & Young-Ro Yoon, 2007. "First versus Second-Mover Advantage with Information Asymmetry about the Size of New Mark," CAEPR Working Papers 2007-017, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    • Handle: RePEc:inu:caeprp:2007017
    as

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    File URL: https://caepr.indiana.edu/RePEc/inu/caeprp/caepr2007-017.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Market Entry; First- and Second Mover Advantage; Payoff Externalities; Informational Externalities; Endogenous Timing;
    All these keywords.

    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; Mechanism Design
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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