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Innovation in a generalized timing game

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  • Smirnov, Vladimir
  • Wait, Andrew

Abstract

We examine innovation as a timing game with complete information and observable actions in which firms decide when to enter a market. We characterize all pure strategy subgame perfect equilibria for the two-player symmetric game. In particular, we describe all subgame perfect equilibria when both the leader's and the followers' payoff functions are multi-peaked, non-monotonic and discontinuous. We find that there are potentially multiple equilibria, which could involve: joint adoption by both firms, with and without rent equalization; and, alternatively, single-firm adoption with a second-mover advantage. Economic applications are discussed including process and product innovation and the timing of the sale of an asset.

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File URL: http://hdl.handle.net/2123/9340
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Bibliographic Info

Paper provided by University of Sydney, School of Economics in its series Working Papers with number 2013-16.

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Date of creation: Aug 2013
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Handle: RePEc:syd:wpaper:2123/9340

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Postal: Sydney, NSW 2006
Phone: 61 +2 9351 5055
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Web page: http://sydney.edu.au/arts/economics
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Keywords: product innovation; process innovation; follower; leader; entry; timing games;

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  1. Fudenberg, Drew & Tirole, Jean, 1983. "Capital as a commitment: Strategic investment to deter mobility," Journal of Economic Theory, Elsevier, vol. 31(2), pages 227-250, December.
  2. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  3. Francesco Squintani & Hugo Hopenhayn, 2005. "Preemption Games with Private Information," 2005 Meeting Papers 80, Society for Economic Dynamics.
  4. Dutta, Prajit K & Rustichini, Aldo, 1993. "A Theory of Stopping Time Games with Applications to Product Innovations and Asset Sales," Economic Theory, Springer, vol. 3(4), pages 743-63, October.
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  7. Gale, Douglas, 1995. "Dynamic Coordination Games," Economic Theory, Springer, vol. 5(1), pages 1-18, January.
  8. Andreas Park & Lones Smith, 2008. "Caller Number Five and Related Timing Games," Working Papers tecipa-317, University of Toronto, Department of Economics.
  9. Fudenberg, Drew & Tirole, Jean, 1985. "Preemption and Rent Equilization in the Adoption of New Technology," Review of Economic Studies, Wiley Blackwell, vol. 52(3), pages 383-401, July.
  10. Van Long Ngo, 2010. "A Survey Of Dynamic Games In Economics:," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., volume 1, number 7577.
  11. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  12. Hendricks, Kenneth, 1992. "Reputations in the adoption of a new technology," International Journal of Industrial Organization, Elsevier, vol. 10(4), pages 663-677, December.
  13. Dutta, Prajit K & Lach, Saul & Rustichini, Aldo, 1995. "Better Late Than Early: Vertical Differentiation in the Adoption of a New Technology," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 563-89, Winter.
  14. Argenziano, Rossella & Schmidt-Dengler, Philipp, 2012. "Inefficient entry order in preemption games," Journal of Mathematical Economics, Elsevier, vol. 48(6), pages 445-460.
  15. Hoppe, Heidrun C. & Lehmann-Grube, Ulrich, 2005. "Innovation timing games: a general framework with applications," Journal of Economic Theory, Elsevier, vol. 121(1), pages 30-50, March.
  16. Heidrun C. Hoppe & Ulrich Lehmann-Grube, 2001. "Second-Mover Advantages in Dynamic Quality Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 419-433, 09.
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