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

Author

Listed:
  • Eric Rasmusen

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • Young-Ro Yoon

    (Department of Economics, Indiana University)

Abstract

Is it better to move first, or second— to innovate, or to imitate? We look at this in a context with both asymmetric information and payoff externalities. Suppose two players, one with superior information about market quality, consider entering one of two new markets immediately or waiting until the last possible date. We show that the more accurate the informed player’s information, the more he wants to delay to keep his information private. The less-informed player also wants to delay, but in order to learn. The less accurate the informed player’s information, the more both players want to move first to foreclose a market. More accurate information can lead to inefficiency by increasing the players’ incentive to delay. Thus, a moderate delay cost can increase industry profits.

Suggested Citation

  • Eric Rasmusen & Young-Ro Yoon, 2008. "First versus Second-Mover Advantage with Information Asymmetry about the Size of New Markets," Working Papers 2008-15, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  • Handle: RePEc:iuk:wpaper:2008-15
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    File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2008-15-rasmusen-yoon.pdf
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    References listed on IDEAS

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    Cited by:

    1. Dirk Oberschachtsiek, 2014. "Waiting to start a business venture. Empirical evidence on the determinants," Working Paper Series in Economics 293, University of Lüneburg, Institute of Economics.
    2. repec:dpr:wpaper:0908 is not listed on IDEAS
    3. Shinhye Kim & Melanie Bowen & Xiaohan (Hannah) Wen, 2019. "The ultimate co-creation: leveraging customer input in business model innovation," AMS Review, Springer;Academy of Marketing Science, vol. 9(3), pages 339-356, December.
    4. Chen, Chia-Hui & Ishida, Junichiro & Mukherjee, Arijit, 2023. "Pioneer, early follower or late entrant: Entry dynamics with learning and market competition," European Economic Review, Elsevier, vol. 152(C).
    5. Chia-Hui Chen & Junichiro Ishida & Arijit Mukherjee, 2018. "An Entry Game with Learning and Market Competition," ISER Discussion Paper 1043, Institute of Social and Economic Research, Osaka University.
    6. Dong‐Sing He & Imen Tebourbi, 2021. "Measuring the continuation effects of market order entry: A dynamic model," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 762-777, April.
    7. Lee, DongJoon & Choi, Kangsik & Hwang, Kyu-Chan, 2014. "Reverse First-mover and Second-mover Advantage in a Vertical Structure," MPRA Paper 59803, University Library of Munich, Germany.

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    More about this item

    Keywords

    market entry; first- and second mover advantage; payoff externalities; informational externalities; endogenous timing;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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