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The timing and location of entry in growing markets: subgame perfection at work

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  • Bryan Bollinger
  • Ulrich Doraszelski
  • Kenneth L. Judd
  • Ryan C. McDevitt

Abstract

We develop and analyze a dynamic model in which firms decide when and where to enter a growing market. We do not pre‐specify the order of entry, allowing instead for the leader and follower to be determined endogenously. We characterize the subgame perfect equilibria of the dynamic game and show the times and locations of entry are governed by the threat of preemption, which leads to premature entry, less extreme locations, and the dissipation of rents. Using data on gas stations, restaurants, and hotels in isolated markets, we find results consistent with subgame perfection for gas stations and three‐star hotels.

Suggested Citation

  • Bryan Bollinger & Ulrich Doraszelski & Kenneth L. Judd & Ryan C. McDevitt, 2024. "The timing and location of entry in growing markets: subgame perfection at work," RAND Journal of Economics, RAND Corporation, vol. 55(2), pages 169-198, June.
    • Handle: RePEc:bla:randje:v:55:y:2024:i:2:p:169-198
    DOI: 10.1111/1756-2171.12462
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    References listed on IDEAS

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