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Innovation in a generalized timing game

  • Smirnov, Vladimir
  • Wait, Andrew

We examine innovation as a timing game with complete information and observable actions in which firms decide when to enter a market. We characterize all pure strategy subgame perfect equilibria for the two-player symmetric game. In particular, we describe all subgame perfect equilibria when both the leader's and the followers' payoff functions are multi-peaked, non-monotonic and discontinuous. We find that there are potentially multiple equilibria, which could involve: joint adoption by both firms, with and without rent equalization; and, alternatively, single-firm adoption with a second-mover advantage. Economic applications are discussed including process and product innovation and the timing of the sale of an asset.

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File URL: http://econ-wpseries.com/2013/201316.pdf
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Paper provided by University of Sydney, School of Economics in its series Working Papers with number 2013-16.

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Date of creation: Aug 2013
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Handle: RePEc:syd:wpaper:2123/9340
Contact details of provider: Postal: Sydney, NSW 2006
Phone: 61 +2 9351 5055
Fax: 61 +2 9351 4341
Web page: http://sydney.edu.au/arts/economics
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  1. Argenziano, Rossella & Schmidt-Dengler, Philipp, 2012. "Inefficient entry order in preemption games," Journal of Mathematical Economics, Elsevier, vol. 48(6), pages 445-460.
  2. Dutta, P.K. & Rustichini, A., 1991. "A Theory of stopping Time Games with Applications to Product Innovations and Asset Sales," RCER Working Papers 263, University of Rochester - Center for Economic Research (RCER).
  3. Prajit K. Dutta & Saul Lach & Aldo Rustichini, 1993. "Better Late Than Early: Vertical Differentiation in the Adoption of a New Technology," NBER Working Papers 4473, National Bureau of Economic Research, Inc.
  4. Simon, Leo K & Stinchcombe, Maxwell B, 1989. "Extensive Form Games in Continuous Time: Pure Strategies," Econometrica, Econometric Society, vol. 57(5), pages 1171-1214, September.
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  7. Hendricks, Kenneth, 1992. "Reputations in the adoption of a new technology," International Journal of Industrial Organization, Elsevier, vol. 10(4), pages 663-677, December.
  8. 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.
  9. Hoppe, Heidrun C. & Lehmann-Grube, Ulrich, 2005. "Innovation timing games: a general framework with applications," Journal of Economic Theory, Elsevier, vol. 121(1), pages 30-50, March.
  10. Park, Andreas & Smith, Lones, 2008. "Caller Number Five and related timing games," Theoretical Economics, Econometric Society, vol. 3(2), June.
  11. Van Long Ngo, 2010. "A Survey Of Dynamic Games In Economics:," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., volume 1, number 7577, December.
  12. Katz, Michael L & Shapiro, Carl, 1987. "R&D Rivalry with Licensing or Imitation," American Economic Review, American Economic Association, vol. 77(3), pages 402-20, June.
  13. Fudenberg, Drew & Tirole, Jean, 1983. "Capital as a commitment: Strategic investment to deter mobility," Journal of Economic Theory, Elsevier, vol. 31(2), pages 227-250, December.
  14. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  15. Gale, Douglas, 1995. "Dynamic Coordination Games," Economic Theory, Springer, vol. 5(1), pages 1-18, January.
  16. Heidrun C. Hoppe & Ulrich Lehmann-Grube, 2001. "Second-Mover Advantages in Dynamic Quality Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 419-433, 09.
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