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Learning and Collusion in New Markets with Uncertain Entry Costs

  • Francis Bloch

    ()

    (Department of Economics, Ecole Polytechnique)

  • Simona Fabrizi

    ()

    (School of Economics and Finance (Albany), Massey University)

  • Steffen Lippert

    ()

    (Department of Economics, University of Otago)

This paper analyses 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 pre-emption.

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File URL: http://www.business.otago.ac.nz/econ/research/discussionpapers/DP_1112.pdf
File Function: First version, 2011
Download Restriction: no

Paper provided by University of Otago, Department of Economics in its series Working Papers with number 1112.

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Length: 36 pages
Date of creation: Dec 2011
Date of revision: Dec 2011
Handle: RePEc:otg:wpaper:1112
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