Hiding and herding in market entry

Francis Bloch (), Simona Fabrizi and Steffen Lippert
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Francis Bloch: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Simona Fabrizi: University of Auckland [Auckland]

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Abstract: We model entry decisions of rival firms into a new market with uncertain common entry costs, potential product market competition, and experimentation. We show that a separating equilibrium, where firms enter only when they learn that the cost is low and are immediately followed by their rival, always exists. We also show the existence of pooling equilibria. In these equilibria, uninformed firms coordinate to enter at specific entry dates with positive probability and firms that learn that the cost is low before those dates strategically delay their entry to hide under the cover of the uninformed firms. We show that these pooling equilibria, which do not trigger immediate entry, are more likely to exist with an early than a late entry date, that they are unique given a fixed entry date, and that equilibrium payoffs are nonmonotonic in the entry date. We also study recurrent-entry pooling equilibria with multiple entry dates for uninformed firms.

Keywords: Entry; Uncertain and irreversible costs; Common values; Hiding and herding; Experimentation; Market competition (search for similar items in EconPapers)
Date: 2022-12
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Published in Journal of Economic Theory, 2022, 206, ⟨10.1016/j.jet.2022.105568⟩

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Journal Article: Hiding and herding in market entry (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-03956373

DOI: 10.1016/j.jet.2022.105568

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