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

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  • Eric Rasmusen

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • Young-Ro Yoon

    (Department of Economics, Indiana University)

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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File URL: http://www.bus.indiana.edu/riharbau/RePEc/iuk/wpaper/bepp2008-15-rasmusen-yoon.pdf
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Bibliographic Info

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

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References

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Cited by:
  1. Dirk Oberschachtsiek, 2014. "Waiting to start a business venture. Empirical evidence on the determinants," Working Paper Series in Economics 293, University of Lüneburg, Institute of Economics.

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