 Entry under placement uncertaintySunanda Roy, Rajesh Singh and Quinn Weninger Games and Economic Behavior, 2024, vol. 145, issue C, 157-196 Abstract: We present a model of firm entry in an industry that operates under an aggregate production quota or cap-and-trade (CAT) regulation. Firms are heterogeneous in their own productivity; each knows its costs of production but is uncertain about where its costs rank among an entrant population. We show the existence of a unique, symmetric, dominance solvable, Bayesian Nash equilibrium in switching strategies in a parameterized game with a continuum of players. Our main result is that uncertainty over one's productivity rank is sufficient to cause socially inefficient over-entry when the average cost in the population of potential entrants is low. We find socially inefficient under-entry when the opposite conditions hold. Within both the class of models on global games with strategic substitutes and the class of models on firm entry, our model offers innovative insights into inefficient over-entry, under-entry, and introduces a novel underlying mechanism that drives entry bias. Keywords: Placement uncertainty; Over entry; Under entry; Cap-and-trade regulations (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:145:y:2024:i:c:p:157-196 DOI: 10.1016/j.geb.2024.03.006 Access Statistics for this article Games and Economic Behavior is currently edited by E. Kalai More articles in Games and Economic Behavior from Elsevier |
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