1 option
Strategic Investment under Uncertainty with First- and Second-mover Advantages / Min Dai, Zhaoli Jiang, Neng Wang.
- Format:
- Book
- Author/Creator:
- Dai, Min.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w30150.
- NBER working paper series no. w30150
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2022.
- Summary:
- We analyze a duopoly real-option entry game where the second mover has a cost advantage over the first mover. The equilibrium solution features five regions. In addition to the option-value-of-waiting and competing-to-enter (first-mover-advantage) regions (Fudenberg and Tirole, 1985; Grenadier, 1996), three new regions appear due to the second-mover advantage: a waiting-to-be-Follower region and two disconnected probabilistic-entry regions. Only when market demand is very high does Follower immediately enter after Leader does. The second-mover advantage causes firms to use state-contingent mixed strategies, significantly delaying their entry timing. Our model generates new predictions, e.g., entry likelihood is non-monotonic in market demand.
- Notes:
- Print version record
- June 2022.
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