Learning and Collusion in New Markets with Uncertain Entry Costs
Bloch, Francis; Fabrizi, Simona; Lippert, Steffen
This paper analyses an entry timing game with uncertain entry costs. Two firms receive costless signals about the cost of a new project and decide when to invest. We characterize the equilibrium of the investment timing game with private and public signals. We show that competition leads the two firms to invest too early and analyse collusion schemes whereby one firm prevents the other firm from entering the market. We show that, in the efficient collusion scheme, the active firm must transfer a large part of the surplus to the inactive firm in order to limit pre-emption.
Publisher: University of Otago
Series number: 1112
Keywords: Learning; Pre-emption; Innovation; New Markets; Project Selection; Entry Costs; Collusion; Private Information; Market Uncertainty
Research Type: Discussion Paper