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Entry, Exit and Coordination with Mixed Strategies

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  • Vettas, Nikolaos

Abstract

A dynamic entry and exit game is studied, where, following Dixit and Shapiro (1986), firms play symmetric mixed strategies. Due to coordination considerations, the value of incumbency is increasing in the number of incumbent firms (up to the point where there is excess capacity). This feature of the problem complicates the study of a mixed strategy equilibrium, because the relevant payoffs are not monotonic functions of the randomization probabilities, as they are often implicitly assumed to be. It is shown that the payoff functions have an interesting dynamic structure, which allows the complete characterization of the equilibrium.

Suggested Citation

  • Vettas, Nikolaos, 1996. "Entry, Exit and Coordination with Mixed Strategies," Working Papers 96-33, Duke University, Department of Economics.
    • Handle: RePEc:duk:dukeec:96-33
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    References listed on IDEAS

    as
    1. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
    2. Vives, Xavier, 1988. "Sequential entry, industry structure and welfare," European Economic Review, Elsevier, vol. 32(8), pages 1671-1687, October.
    3. Rafael Rob, 1987. "Entry, Fixed Costs and the Aggregation of Private Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(4), pages 619-630.
    4. Cabral Luis M. B., 1993. "Experience Advantages and Entry Dynamics," Journal of Economic Theory, Elsevier, vol. 59(2), pages 403-416, April.
    5. Klepper, Steven & Miller, John H., 1995. "Entry, exit, and shakeouts in the United States in new manufactured products," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 567-591, December.
    6. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
    7. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-599, June.
    8. Joseph Farrell, 1987. "Cheap Talk, Coordination, and Entry," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 34-39, Spring.
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    Citations

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    Cited by:

    1. Hanazono, Makoto & Yang, Huanxing, 2009. "Dynamic entry and exit with uncertain cost positions," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 474-487, May.
    2. Konrad, Kai A. & Kovenock, Dan, 2012. "The lifeboat problem," European Economic Review, Elsevier, vol. 56(3), pages 552-559.
    3. Gamal Atallah, 2006. "Opportunity Costs, Competition, and Firm Selection," International Economic Journal, Taylor & Francis Journals, vol. 20(4), pages 409-430.
    4. Germán Coloma, 2010. "El número óptimo de empresas bajo competencia de Bertrand," Estudios de Economia, University of Chile, Department of Economics, vol. 37(2 Year 20), pages 189-205, December.
    5. Levin, Dan & Peck, James, 2008. "Investment dynamics with common and private values," Journal of Economic Theory, Elsevier, vol. 143(1), pages 114-139, November.
    6. Qiaowei Shen & J. Miguel Villas-Boas, 2010. "Strategic Entry Before Demand Takes Off," Management Science, INFORMS, vol. 56(8), pages 1259-1271, August.
    7. Cabral, Luis M. B., 2004. "Simultaneous entry and welfare," European Economic Review, Elsevier, vol. 48(5), pages 943-957, October.
    8. Asma Raies, 2004. "Innovation, learning and productivity improvement in developing countries: a dynamic model of technological adoption and industry evolution," Cahiers de la Maison des Sciences Economiques bla04112, Université Panthéon-Sorbonne (Paris 1).
    9. Schultz, Christian, 2009. "Transparency and product variety," Economics Letters, Elsevier, vol. 102(3), pages 165-168, March.

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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