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Learning and collusion in new markets with uncertain entry costs

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Abstract

This paper analyzes 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 two collusion schemes, one in which one firm pays the other to stay out of the market and one in which this buyout is mediated by a third party. We characterize conditions under which the efficient outcome can be implemented in both collusion schemes. Copyright Springer-Verlag Berlin Heidelberg 2015

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  • Francis Bloch & Simona Fabrizi & Steffen Lippert, 2015. "Learning and collusion in new markets with uncertain entry costs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(2), pages 273-303, February.
    • Handle: RePEc:spr:joecth:v:58:y:2015:i:2:p:273-303
    DOI: 10.1007/s00199-014-0814-2
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    Cited by:

    1. Smirnov, Vladimir & Wait, Andrew, 2021. "Preemption with a second-mover advantage," Games and Economic Behavior, Elsevier, vol. 129(C), pages 294-309.
    2. Stefano Barbieri & Kai A. Konrad & David A. Malueg, 2020. "Preemption contests between groups," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 934-961, September.
    3. Bloch, Francis & Fabrizi, Simona & Lippert, Steffen, 2022. "Hiding and herding in market entry," Journal of Economic Theory, Elsevier, vol. 206(C).
    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. Xiong, Yan & Jiang, Xu, 2022. "Economic consequences of managerial compensation contract disclosure," Journal of Accounting and Economics, Elsevier, vol. 73(2).
    7. Effrosyni Diamantoudi & Eftichios Sartzetakis, 2015. "International environmental agreements: coordinated action under foresight," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(3), pages 527-546, August.
    8. Smirnov, Vladimir & Wait, Andrew, 2018. "Blocking in a timing game with asymmetric players," Working Papers 2018-05, University of Sydney, School of Economics, revised May 2019.

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    More about this item

    Keywords

    Learning; Preemption; New markets; Project selection; Collusion; C71; C72; D81;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • 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
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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