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

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Author Info
Eric Rasmusen (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
Young-Ro Yoon (Department of Economics, Indiana University)

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Abstract

Is it better to move first, or second— to innovate, or to imitate? We look at this in a context with both asymmetric information and payoff externalities. Suppose two players, one with superior information about market quality, consider entering one of two new markets immediately or waiting until the last possible date. We show that the more accurate the informed player’s information, the more he wants to delay to keep his information private. The less-informed player also wants to delay, but in order to learn. The less accurate the informed player’s information, the more both players want to move first to foreclose a market. More accurate information can lead to inefficiency by increasing the players’ incentive to delay. Thus, a moderate delay cost can increase industry profits.

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Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2008-15.

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Date of creation: Nov 2008
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Handle: RePEc:iuk:wpaper:2008-15

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Related research
Keywords: market entry; first- and second mover advantage; payoff externalities; informational externalities; endogenous timing;

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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
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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