Learning and Collusion in New Markets with Uncertain Entry Costs

Francis Bloch (), Simona Fabrizi () and Steffen Lippert ()

No 1112, Working Papers from University of Otago, Department of Economics

Abstract: This paper analyses 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 collusion schemes whereby one firm prevents the other firm from entering the market. We show that, in the efficient collusion scheme, the active firm must transfer a large part of the surplus to the inactive firm in order to limit pre-emption.

Keywords: Learning; Pre-emption; Innovation; New Markets; Project Selection; Entry Costs; Collusion; Private Information; Market Uncertainty (search for similar items in EconPapers)
JEL-codes: C63 C71 C72 D81 D82 D83 F21 O32 (search for similar items in EconPapers)
Date: 2011-12, Revised 2011-12
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http://www.business.otago.ac.nz/econ/research/discussionpapers/DP_1112.pdf First version, 2011 (application/pdf)

Related works:
Working Paper: Learning and Collusion in New Markets with Uncertain Entry Costs (2011)
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Persistent link: http://EconPapers.repec.org/RePEc:otg:wpaper:1112

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