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Preemption Games with Private Information

  • Hugo A. Hopenhayn
  • Francesco Squintani

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.

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Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 78 (2011)
Issue (Month): 2 ()
Pages: 667-692

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Handle: RePEc:oup:restud:v:78:y:2011:i:2:p:667-692
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