STRATEGIC DIFFERENTIATION AND STRATEGIC EMULATION IN GAMES WITH UNCERTAINTY*

James Dana

Journal of Industrial Economics, 2005, vol. 53, issue 3, 417-432

Abstract: When players who choose a common strategy face a common shock, while players who choose different strategies face independent or imperfectly correlated shocks, equilibrium choices exhibit differentiation (respectively emulation) when the sign of the cross‐partial derivative of the firms' profit functions with respect to the realizations of the uncertain variables is negative (respectively positive). I consider a variety of applications, including technology choice, brand investments, and R&D races, many of which can be characterized as two‐stage games. In such games I demonstrate that differentiation is more likely to occur when the second stage game is a game of strategic substitutes.

Date: 2005
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