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Learning and Collusion in New Markets with Uncertain Entry Costs

  • Francis Bloch

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)

  • Simona Fabrizi

    (Massey University - SIERC)

  • Steffen Lippert

    (University of Otago - Department of Economics)

This paper analyzes an entry timing game with uncertain entry costs. Two firms receive costless signals about the cost of a new project and decide when to invest. We characterize the equilibrium of the investment timing game with private and public signals. We show that competition leads the two firms to invest too early and analyze collusion schemes whereby one firm prevents the other firm from entering the market. We show that, in the efficient collusion scheme, the active firm must transfer a large part of the surplus to the inactive firm in order to limit preemption.

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Paper provided by HAL in its series Working Papers with number hal-00639049.

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Date of creation: 08 Nov 2011
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Handle: RePEc:hal:wpaper:hal-00639049
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  7. Hugo A. Hopenhayn & Francesco Squintani, 2011. "Preemption Games with Private Information," Review of Economic Studies, Oxford University Press, vol. 78(2), pages 667-692.
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  12. Ekaterina Goldfain & Eugen Kovac, 2005. "Financing of Competing Projects with Venture Capital," Bonn Econ Discussion Papers bgse37_2005, University of Bonn, Germany.
  13. Gandal, N. & Scotchmen, S., 1991. "Coordinating Research Through Research Joint Ventures," Papers 6-91, Tel Aviv.
  14. Masako Ueda, 2004. "Banks versus Venture Capital: Project Evaluation, Screening, and Expropriation," Journal of Finance, American Finance Association, vol. 59(2), pages 601-621, 04.
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  16. Reinganum, Jennifer F, 1982. "A Dynamic Game of R and D: Patent Protection and Competitive Behavior," Econometrica, Econometric Society, vol. 50(3), pages 671-88, May.
  17. Hoppe, Heidrun C. & Lehmann-Grube, Ulrich, 2005. "Innovation timing games: a general framework with applications," Journal of Economic Theory, Elsevier, vol. 121(1), pages 30-50, March.
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