Optimal Entry Timing
Posted: 18 Dec 2013 Last revised: 4 Nov 2016
Date Written: November 29, 2013
Abstract
A firm of privately known strength chooses when to enter a market, and an incumbent chooses whether to compete or concede. Information about the potential entrant's type is revealed publicly according to an exogenous news process and the timing of entry. I analyze stationary equilibria using the public belief as a state variable. No equilibria in pure strategies exist. Under both D1 and a novel refinement, all equilibria have the following structure: for high states, both types enter with certainty; for a possibly empty interval of intermediate states, no type enters; and for low states, the high type enters while the low type mixes. I obtain closed form solutions and analyze comparative statics for such equilibria.
Keywords: Dynamic games, Bayesian learning, market entry, optimal stopping, information economics, continuous time
JEL Classification: C73, D82, D83
Suggested Citation: Suggested Citation