Alertness, Leadership, and Nascent Market Dynamics

Bruno Versaevel

Dynamic Games and Applications, 2015, vol. 5, issue 4, 440-466

Abstract: In a continuous-time model with uncertain market development, two potential entrants detect a nascent demand only if it reaches a firm-specific threshold. Entry occurs by investing irreversibly before competing in quantities. When leadership in the investment stage implies a first-mover advantage in the market stage, we examine how the firms’ relative “alertness” drives the equilibrium outcomes. If the firms detect the new demand relatively late, the entry strategies and resulting firm values differ qualitatively from those in standard real option games: (1) In case of symmetric detection, the probability of simultaneous entry is nonzero, and can be one, although demand is still nascent. When sequential entry occurs, there is no rent equalization, with the post-entry market advantage, resulting in higher equilibrium expected value to the leader; (2) in case of asymmetric detection, entry is always sequential, and the more alert firm maximizes value by delaying its investment to enter exactly when its short-sighted rival detects demand. The marginal effect of the market advantage on the leader’s equilibrium value increases in the inter-firm alertness differential; and (3) more demand volatility reduces the value differential across firms and makes less likely the impact of imperfect alertness on entry decisions. Copyright Springer Science+Business Media New York 2015

Keywords: Alertness; First-mover advantage; Preemption; Entry; C73; D43; D92; L13 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1007/s13235-015-0163-1 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Alertness, Leadership, and Nascent Market Dynamics (2015)
Working Paper: Alertness, Leadership, and Nascent Market Dynamics (2015)
Working Paper: Alertness, Leadership, and Nascent Market Dynamics (2014)
Working Paper: Alertness, Leadership, and Nascent Market Dynamics (2013)
Working Paper: Alertness, Leadership, and Nascent Market Dynamics (2013)
Working Paper: Alertness, Leadership, and Nascent Market Dynamics (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:dyngam:v:5:y:2015:i:4:p:440-466

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/13235

DOI: 10.1007/s13235-015-0163-1

Access Statistics for this article

Dynamic Games and Applications is currently edited by Georges Zaccour

More articles in Dynamic Games and Applications from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().