 Preemptive investments under uncertainty, credibility and first mover advantagesInternational Journal of Industrial Organization, 2016, vol. 44, issue C, 123-137 Abstract: We present a continuous-time game in which two firms must decide at each instant of time whether to be in or out of a market that expands up to a random maturity date and declines thereafter. Firms are initially inactive, and they differ only in the opportunity costs of using their assets (e.g., owing to different redeployment or resale values). After characterizing the unique Markov perfect equilibrium of the entry and exit game under demand uncertainty, we challenge the result that the threat of preemption can partially or even totally dissipate a first mover advantage. When post-entry profits can be negative, the preemption threat of a firm may become weaker because its rival may force it out of the market after entering. As a result, there may be little or no dissipation of the first mover advantage when post-investment profits are not assumed to be always positive. Keywords: Entry; Exit; Rent dissipation; Credible commitment; Timing games; War of attrition (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:indorg:v:44:y:2016:i:c:p:123-137 DOI: 10.1016/j.ijindorg.2015.10.008 Access Statistics for this article International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal More articles in International Journal of Industrial Organization from Elsevier |
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