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First versus Second-Mover Advantage with Information Asymmetry about the Size of New Markets

  • Eric Rasmusen

    ()

    (Indiana University Bloomington)

  • Young-Ro Yoon

    ()

    (Indiana University Bloomington)

Is it better to move first, or second--- to innovate, or to imitate? Suppose one player has superior information about which of two new markets is better. If he enters first, he might be able to secure a natural monopoly. (The less-informed player also has this motive.) If he enters second, he can prevent the other player from imitating him. We find, predictably, that the more accurate the informed player's information the more he wants to delay in order to prevent the spillover of his information. Also, the less accurate the informed player's information the more he wants to move first in order to foreclose a market. In addition, the bigger the difference in markets, the more likely the two players will make the same choice. More surprisingly, if the informed player's information becomes more accurate that can hurt both industry profits and consumer welfare by inducing both players to choose what they hope is the bigger market, leaving the other market not served.

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File URL: http://www.iub.edu/~caepr/RePEc/PDF/2007/CAEPR2007-017.pdf
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Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2007-017.

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Length: 36 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:inu:caeprp:2007017
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