Blocking in a timing game with asymmetric players

No 2018-05, Working Papers from University of Sydney, School of Economics

Abstract: We examine innovation as a market-entry timing game with complete information and observable actions. We allow for heterogenous payoffs between players, and for a leader's payoff functions to be multi-peaked and non-monotonic. Assuming that the follower's payoff is non-increasing with the time of the leader's entry, we characterize all pure-strategy subgame perfect equilibria for the two-player asymmetric model, showing that there are at most two equilibria. Firm heterogeneity allows for equilibria with different characteristics than previously examined in the literature. For example, a fi rm may wish to enter earlier blocking its rival's entry, so as to avoid an anticipated lower future payoff if it waited. A notable feature of this blocking equilibrium is that rents need not be equalized between the leader and follower. We also show that if the followers' payoffs are non-monotonic, the iterative incentives to block each other's product launch may lead to starkly inefficient early entry in a continuous version of the centipede game.

Keywords: timing games; blocking entry; innovation. (search for similar items in EconPapers)
Date: 2018-09, Revised 2019-05
New Economics Papers: this item is included in nep-com, nep-gth and nep-mic
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Citations: View citations in EconPapers (1)

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