Economic Theory

, Volume 58, Issue 2, pp 273–303 | Cite as

Learning and collusion in new markets with uncertain entry costs

Research Article

Abstract

This paper analyzes 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 analyze two collusion schemes, one in which one firm pays the other to stay out of the market and one in which this buyout is mediated by a third party. We characterize conditions under which the efficient outcome can be implemented in both collusion schemes.

Keywords

Learning Preemption New markets Project selection Collusion 

JEL Classification

C71 C72 D81 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  • Francis Bloch
    • 1
    • 5
  • Simona Fabrizi
    • 2
    • 3
    • 5
  • Steffen Lippert
    • 3
    • 4
    • 5
  1. 1.Paris School of EconomicsUniversité Paris 1 Panthéon SorbonneParis Cedex 13France
  2. 2.School of Economics and Finance (Albany)Massey UniversityAucklandNew Zealand
  3. 3.Centre for Mathematical Social ScienceUniversity of AucklandAucklandNew Zealand
  4. 4.Department of EconomicsUniversity of OtagoDunedinNew Zealand
  5. 5.ATEAucklandNew Zealand

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