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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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  1. Fabrizi, Simona & Lippert, Steffen & Norbäck, Pehr-Johan & Persson, Lars, 2011. "Venture Capital, Patenting, and Usefulness of Innovations," CEPR Discussion Papers 8392, C.E.P.R. Discussion Papers.
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  3. Décamps, Jean-Paul & Mariotti, Thomas & Villeneuve, Stéphane, 2003. "Irreversible Investment in Alternative Projects," IDEI Working Papers 193, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jul 2004.
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  6. Godfrey Keller & Sven Rady, 1997. "Optimal Experimentation in a Changing Environment," STICERD - Theoretical Economics Paper Series 333, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  7. Decamps, Jean-Paul & Mariotti, Thomas, 2004. "Investment timing and learning externalities," Journal of Economic Theory, Elsevier, vol. 118(1), pages 80-102, September.
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  10. 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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  14. Harris, Christopher & Vickers, John, 1987. "Racing with Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 1-21, January.
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  18. Moscarini, Giuseppe & Squintani, Francesco, 2010. "Competitive experimentation with private information: The survivor's curse," Journal of Economic Theory, Elsevier, vol. 145(2), pages 639-660, March.
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  20. Dinah Rosenberg & Eilon Solan & Nicolas Vieille, 2007. "Social Learning in One-Arm Bandit Problems," Econometrica, Econometric Society, vol. 75(6), pages 1591-1611, November.
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  23. Pauli Murto & Juuso Välimäki, 2011. "Learning and Information Aggregation in an Exit Game," Review of Economic Studies, Oxford University Press, vol. 78(4), pages 1426-1461.
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  25. repec:inr:wpaper:152574 is not listed on IDEAS
  26. Harris, Christopher & Vickers, John, 1985. "Perfect Equilibrium in a Model of a Race," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 193-209, April.
  27. Fudenberg, Drew & Tirole, Jean, 1985. "Preemption and Rent Equilization in the Adoption of New Technology," Review of Economic Studies, Wiley Blackwell, vol. 52(3), pages 383-401, July.
  28. Jay P. Choi, 1991. "Dynamic R&D Competition under "Hazard Rate" Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 596-610, Winter.
  29. Nicolas Vieille & Dinah Rosenberg & Eilon Solan, 2007. "Social Learning in One-Arm Bandit Problems," Post-Print hal-00464609, HAL.
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