Optimal Entry Timing

Posted: 18 Dec 2013 Last revised: 4 Nov 2016

See all articles by Aaron Kolb

Aaron Kolb

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

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 re finement, 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

Kolb, Aaron, Optimal Entry Timing (November 29, 2013). Journal of Economic Theory, Vol. 157, 2015, Available at SSRN: https://ssrn.com/abstract=2368318 or http://dx.doi.org/10.2139/ssrn.2368318

Aaron Kolb (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States

HOME PAGE: http://https://sites.google.com/site/aaronmkolb/

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