IDEAS home Printed from https://ideas.repec.org/a/bla/randje/v55y2024i2p169-198.html

The timing and location of entry in growing markets: subgame perfection at work

Author

Listed:
  • Bryan Bollinger
  • Ulrich Doraszelski
  • Kenneth L. Judd
  • Ryan C. McDevitt

Abstract

We develop and analyze a dynamic model in which firms decide when and where to enter a growing market. We do not pre‐specify the order of entry, allowing instead for the leader and follower to be determined endogenously. We characterize the subgame perfect equilibria of the dynamic game and show the times and locations of entry are governed by the threat of preemption, which leads to premature entry, less extreme locations, and the dissipation of rents. Using data on gas stations, restaurants, and hotels in isolated markets, we find results consistent with subgame perfection for gas stations and three‐star hotels.

Suggested Citation

  • Bryan Bollinger & Ulrich Doraszelski & Kenneth L. Judd & Ryan C. McDevitt, 2024. "The timing and location of entry in growing markets: subgame perfection at work," RAND Journal of Economics, RAND Corporation, vol. 55(2), pages 169-198, June.
    • Handle: RePEc:bla:randje:v:55:y:2024:i:2:p:169-198
    DOI: 10.1111/1756-2171.12462
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1756-2171.12462
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1756-2171.12462?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Richard J. Gilbert & Richard G. Harris, 1984. "Competition with Lumpy Investment," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 197-212, Summer.
    2. Richard Ericson & Ariel Pakes, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(1), pages 53-82.
    3. Andrew Sweeting, 2013. "Dynamic Product Positioning in Differentiated Product Markets: The Effect of Fees for Musical Performance Rights on the Commercial Radio Industry," Econometrica, Econometric Society, vol. 81(5), pages 1763-1803, September.
    4. Tabuchi, Takatoshi & Thisse, Jacques-Francois, 1995. "Asymmetric equilibria in spatial competition," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 213-227.
    5. Economides, Nicholas, 1986. "Minimal and maximal product differentiation in Hotelling's duopoly," Economics Letters, Elsevier, vol. 21(1), pages 67-71.
    6. Anderson, Simon P. & Goeree, Jacob K. & Ramer, Roald, 1997. "Location, Location, Location," Journal of Economic Theory, Elsevier, vol. 77(1), pages 102-127, November.
    7. Jennifer F. Reinganum, 1981. "On the Diffusion of New Technology: A Game Theoretic Approach," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(3), pages 395-405.
    8. Jennifer F. Reinganum, 1981. "Market Structure and the Diffusion of New Technology," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 618-624, Autumn.
    9. Michael J. Mazzeo, 2002. "Product Choice and Oligopoly Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 221-242, Summer.
    10. Neven, Damien, 1985. "Two Stage (Perfect) Equilibrium in Hotelling's Model," Journal of Industrial Economics, Wiley Blackwell, vol. 33(3), pages 317-325, March.
    11. Drew Fudenberg & Jean Tirole, 1985. "Preemption and Rent Equalization in the Adoption of New Technology," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(3), pages 383-401.
    12. Peter Arcidiacono & Patrick Bayer & Jason R. Blevins & Paul B. Ellickson, 2016. "Estimation of Dynamic Discrete Choice Models in Continuous Time with an Application to Retail Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(3), pages 889-931.
    13. Mitsuru Igami & Nathan Yang, 2016. "Unobserved heterogeneity in dynamic games: Cannibalization and preemptive entry of hamburger chains in Canada," Quantitative Economics, Econometric Society, vol. 7(2), pages 483-521, July.
    14. Neven, Damien J., 1987. "Endogenous sequential entry in a spatial model," International Journal of Industrial Organization, Elsevier, vol. 5(4), pages 419-434.
    15. Frank Kleibergen, 2002. "Pivotal Statistics for Testing Structural Parameters in Instrumental Variables Regression," Econometrica, Econometric Society, vol. 70(5), pages 1781-1803, September.
    16. Michael H. Riordan, 1992. "Regulation and Preemptive Technology Adoption," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 334-349, Autumn.
    17. Smirnov, Vladimir & Wait, Andrew, 2015. "Innovation in a generalized timing game," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 23-33.
    18. Lambertini, Luca, 2002. "Equilibrium locations in a spatial model with sequential entry in real time," Regional Science and Urban Economics, Elsevier, vol. 32(1), pages 47-58, January.
    19. Argenziano, Rossella & Schmidt-Dengler, Philipp, 2013. "Competition, timing of entry and welfare in a preemption game," Economics Letters, Elsevier, vol. 120(3), pages 509-512.
    20. Economides, Nicholas, 1984. "The principle of minimum differentiation revisited," European Economic Review, Elsevier, vol. 24(3), pages 345-368, April.
    21. Simon, Leo K & Stinchcombe, Maxwell B, 1989. "Extensive Form Games in Continuous Time: Pure Strategies," Econometrica, Econometric Society, vol. 57(5), pages 1171-1214, September.
    22. Qiaowei Shen & J. Miguel Villas-Boas, 2010. "Strategic Entry Before Demand Takes Off," Management Science, INFORMS, vol. 56(8), pages 1259-1271, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Smirnov, Vladimir & Wait, Andrew, 2021. "Preemption with a second-mover advantage," Games and Economic Behavior, Elsevier, vol. 129(C), pages 294-309.
    2. Alexander Matros & Vladimir Smirnov & Andrew Wait, 2024. "Sunk costs, entry and clustering," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 77(3), pages 747-782, May.
    3. Smirnov, Vladimir & Wait, Andrew, 2015. "Innovation in a generalized timing game," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 23-33.
    4. Pavan, Giulia & Pozzi, Andrea & Rovigatti, Gabriele, 2020. "Strategic entry and potential competition: Evidence from compressed gas fuel retail," International Journal of Industrial Organization, Elsevier, vol. 69(C).
    5. Mitsukuni Nishida, 2025. "Entry Order, Performance, And Geography: The Case Of The Convenience‐Store Industry In Japan," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 66(2), pages 787-822, May.
    6. Sun Chia-Hung, 2020. "Timing of Adopting a Flexible Manufacturing System and Product Differentiation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(2), pages 1-17, April.
    7. Smirnov, Vladimir & Wait, Andrew & Xu, Rong, 2018. "Timing of entry with heterogeneous firms," Working Papers 2018-11, University of Sydney, School of Economics.
    8. Rossella Argenziano & Philipp Schmidt-Dengler, 2014. "Clustering In N-Player Preemption Games," Journal of the European Economic Association, European Economic Association, vol. 12(2), pages 368-396, 04.
    9. Rossella Argenziano & Philipp Schmidt-Dengler, 2014. "Clustering In N-Player Preemption Games," Journal of the European Economic Association, European Economic Association, vol. 12(2), pages 368-396, April.
    10. Fleckinger, Pierre & Lafay, Thierry, 2010. "Product flexibility and price competition in Hotelling's duopoly," Mathematical Social Sciences, Elsevier, vol. 60(1), pages 61-68, July.
    11. Toshihiro Matsumura & Noriaki Matsushima, 2010. "Patent licensing, bargaining, and product positioning," ISER Discussion Paper 0775, Institute of Social and Economic Research, The University of Osaka.
    12. Javier Elizalde & Markus Kinateder & Ignacio Rodríguez-Carreño, 2015. "Entry regulation, firm’s behaviour and social welfare," European Journal of Law and Economics, Springer, vol. 40(1), pages 13-31, August.
    13. Bobtcheff, Catherine & Mariotti, Thomas, 2012. "Potential competition in preemption games," Games and Economic Behavior, Elsevier, vol. 75(1), pages 53-66.
    14. Catherine Bobtcheff & Jérôme Bolte & Thomas Mariotti, 2017. "Researcher’s Dilemma," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(3), pages 969-1014.
    15. Smirnov, Vladimir & Wait, Andrew, 2018. "Blocking in a timing game with asymmetric players," Working Papers 2018-05, University of Sydney, School of Economics, revised May 2019.
    16. Hoppe, Heidrun C., 2000. "Second-mover advantages in the strategic adoption of new technology under uncertainty," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 315-338, February.
    17. Drew Fudenberg, 2015. "Tirole's Industrial Regulation and Organization Legacy in Economics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 117(3), pages 771-800, July.
    18. Sun, Chia-Hung, 2023. "Timing of technology adoption in the presence of patent licensing," Economic Modelling, Elsevier, vol. 127(C).
    19. Hehenkamp, Burkhard & Wambach, Achim, 2010. "Survival at the center--The stability of minimum differentiation," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 853-858, December.
    20. Javier Elizalde & Markus Kinateder & Ignacio Rodríguez-Carreño, 2014. "Entry Regulation in a Linear Market with Elastic Demand," Faculty Working Papers 02/14, School of Economics and Business Administration, University of Navarra.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:randje:v:55:y:2024:i:2:p:169-198. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/randdus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.