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Entry and Exit With Information Externalities

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Author Info

  • stefano comino

    (Dipartimento di Economia, Università di Trento)

Abstract

In the paper we analyze how the possibility of revealing information to a competitor alters the entry/investment behavior of a first entrant. We show that once it has entered the market, the firm might refrain from making further profitable investments in order to hide information from the competitor. Moreover, we show that before entering the market, the first entrant anticipates that there is a strategic advantage in choosing an initially small scale of entry: in this way it 'commits' itself to revealing the true state of the market with its subsequent decisions and this fact is beneficial since it induces the competitor to postpone entry into market.

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File URL: http://128.118.178.162/eps/io/papers/0510/0510006.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 0510006.

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Length: 25 pages
Date of creation: 21 Oct 2005
Date of revision:
Handle: RePEc:wpa:wuwpio:0510006

Note: Type of Document - pdf; pages: 25. An updated version of the paper is forthcoming in the Journal of Economic Behavior and Organization and it is available as 'article in press' in the homepage of the journal
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Web page: http://128.118.178.162

Related research

Keywords: Entry; Information Externalities; Wait and See; First Entrant; Strategic Behavior;

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References

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  1. Gale, D. & Chamley, C., 1992. "Information Revelation and Strategic Delay in a Model of Investment," Papers 10, Boston University - Department of Economics.
  2. Rob, Rafael, 1991. "Learning and Capacity Expansion under Demand Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 58(4), pages 655-75, July.
  3. Ernesto Somma, . "The Effect of Incomplete Information about Future Technological Opportunities on Pre-Emption," Discussion Papers 95/41, Department of Economics, University of York.
  4. Otto Toivanen & Michael Waterson, 2005. "Market Structure and Entry: Where's the Beef?," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 680-699, Autumn.
  5. Caplin, Andrew & Leahy, John, 1998. "Miracle on Sixth Avenue: Information Externalities and Search," Economic Journal, Royal Economic Society, vol. 108(446), pages 60-74, January.
  6. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August.
  7. Ashoka Mody & Krishna Srinivasan, 1998. "Japanese and United States Firms as Foreign Investors: Do they march to the same tune?," Canadian Journal of Economics, Canadian Economics Association, vol. 31(4), pages 778-799, November.
  8. Giovanni Maggi, 1996. "Endogenous Leadership in a New Market," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 641-659, Winter.
  9. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  10. Kim Alexander-Cook & Dan Bernhardt & Joanne Roberts, 1995. "Riding Free on the Signals of Others," Working Papers 927, Queen's University, Department of Economics.
  11. McGahan, A. M., 1993. "The effect of incomplete information about demand on preemption," International Journal of Industrial Organization, Elsevier, vol. 11(3), pages 327-346, September.
  12. Gul, Faruk & Lundholm, Russell, 1995. "Endogenous Timing and the Clustering of Agents' Decisions," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 1039-66, October.
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Cited by:
  1. GEORGANTZIS, Nikolaos & moner-colonques, Rafael & ORTS, Vicente & SEMPERE-MONERRIS, José J., 2012. "Theoretical and experimental insights on firms’ internationalization decisions under uncertainty," CORE Discussion Papers 2012041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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