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Optimal entry timing

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  • Kolb, Aaron M.

Abstract

A player of privately known strength chooses when to enter a market, and an incumbent chooses whether to compete or concede. Information about the potential entrant's type is revealed publicly according to an exogenous news process and the timing of entry. I analyze stationary equilibria using the public belief as a state variable. No equilibria in pure strategies exist, and smooth-pasting conditions need not hold. Under both D1 and a novel refinement, the informed player has nondecreasing value functions and her strategy has the following structure: for high states, both types enter with certainty; for a possibly empty interval of intermediate states, no type enters; and for low states, the high type enters while the low type mixes. I obtain closed form solutions and analyze comparative statics for such equilibria. The welfare effects of the presence of news, relative to no news, depend on the starting belief; however, for a fixed equilibrium, a marginal increase in news quality always helps the informed player regardless of her type and always hurts total welfare.

Suggested Citation

  • Kolb, Aaron M., 2015. "Optimal entry timing," Journal of Economic Theory, Elsevier, vol. 157(C), pages 973-1000.
  • Handle: RePEc:eee:jetheo:v:157:y:2015:i:c:p:973-1000
    DOI: 10.1016/j.jet.2015.03.002
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    References listed on IDEAS

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    Cited by:

    1. Dilmé, Francesc, 2019. "Dynamic quality signaling with hidden actions," Games and Economic Behavior, Elsevier, vol. 113(C), pages 116-136.
    2. Kolb, Aaron M., 2019. "Strategic real options," Journal of Economic Theory, Elsevier, vol. 183(C), pages 344-383.
    3. van Leeuwen, Boris & Offerman, Theo & van de Ven, Jeroen, 2018. "Fight or Flight : Endogenous Timing in Conflicts," Other publications TiSEM ed32885c-3183-4eff-a0ff-7, Tilburg University, School of Economics and Management.
    4. Philipp Denter & John Morgan & Dana (D.) Sisak, 2018. "Showing Off or Laying Low? The Economics of Psych-outs," Tinbergen Institute Discussion Papers 18-041/VII, Tinbergen Institute.
    5. Lang, Ruitian, 2019. "Try before you buy: A theory of dynamic information acquisition," Journal of Economic Theory, Elsevier, vol. 183(C), pages 1057-1093.

    More about this item

    Keywords

    Dynamic games; Bayesian learning; Market entry; Optimal stopping; Information economics; Continuous time;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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