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Preemption Games with Private Information

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  • Hugo A. Hopenhayn
  • Francesco Squintani

Abstract

Preemption games are widely used to model economic problems such as patent races. We introduce private information into these games and allow for this information to stochastically change over time. This reflects, e.g. how R&D competitors improve their innovations over time and keep these innovations secret before patenting them. The analysis initially appears intractable because of the complexity of the equilibrium updating of beliefs on opponents' information. However, we demonstrate the existence of a class of equilibria and calculate these equilibria in closed form. We find that the expected durations in these equilibria are longer than when players' information is public but, in some cases, shorter than in the collusive outcome. Hence, R&D secrecy slows down innovation disclosure. Copyright 2011, Oxford University Press.

Suggested Citation

  • Hugo A. Hopenhayn & Francesco Squintani, 2011. "Preemption Games with Private Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(2), pages 667-692.
    • Handle: RePEc:oup:restud:v:78:y:2011:i:2:p:667-692
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    File URL: http://hdl.handle.net/10.1093/restud/rdq021
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    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

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