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Preemption with a Second-Mover Advantage

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  • Smirnov, Vladimir
  • Wait, Andrew

Abstract

We examine innovation in a market-entry timing game with complete information and observable actions when there is a second-mover advantage. Allowing for heterogenous payoffs between players, and for both leader's and follower's payoff functions to be multi-peaked and non-monotonic, we find that there are at most two pure-strategy subgame perfect equilibria. Sometimes these resemble familiar second-mover advantage equilibria from the literature. However, we show that despite there being a follower advantage at all times, there can be a preemption equilibrium with inefficient early entry. In fact, immediate entry is possible in a continuous analogue of the centipede game. These results are related to the observed premature entry and product launches in various markets.

Suggested Citation

  • Smirnov, Vladimir & Wait, Andrew, 2020. "Preemption with a Second-Mover Advantage," Working Papers 2020-06, University of Sydney, School of Economics.
  • Handle: RePEc:syd:wpaper:2020-06
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    References listed on IDEAS

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    Keywords

    timing games; second-mover advantage; preemption.;

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