Strategic Investment and Timing of Entry
Simon Anderson () and
International Economic Review, 1994, vol. 35, issue 4, 833-53
The authors introduce competition over entry time into a sequential output choice model to show how profit differences will be dissipated. This resolves a problem in the standard Stackelberg model that the order of moves is exogenously specified yet an earlier position in the order is usually preferred to a later one. If capacity costs are not too low, the authors' solution applies even if firms cannot commit to sell their entire output. Introducing positive capacity costs slightly modifies the static Stackelberg results since endogenous cost asymmetries arise. The framework, therefore, partially rehabilitates the Stackelberg model. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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