Clustering in N-Player Preemption Games

35 Pages Posted: 9 Mar 2007 Last revised: 27 Feb 2015

See all articles by Rossella Argenziano

Rossella Argenziano

University of Essex - Department of Economics

Philipp Schmidt-Dengler

London School of Economics & Political Science (LSE) - Department of Economics

Date Written: July 2012

Abstract

We study a complete information preemption game in continuous time. A finite number of firms decide when to make an irreversible, observable investment. Upon investment, a firm receives flow profits which decrease in the number of firms that have invested. The cost of investment declines over time exogenously. We characterize the subgame-perfect equilibrium outcome, which is unique up to a permutation of players.When the preemption race among late investors is sufficiently intense, the preemption incentive for earlier investors disappears, and two or more investments occur at the same time. We identify a sufficient condition in terms of model parameters: clustering of investments occurs if the flow profits from consecutive investments are sufficiently close. This shows how clustering can occur in the absence of coordination failures, informational spillovers or positive payoff externalities.

Keywords: Timing Games, Preemption, Technology Adoption, Dynamic Entry

JEL Classification: C73, L13, O3

Suggested Citation

Argenziano, Rossella and Schmidt-Dengler, Philipp, Clustering in N-Player Preemption Games (July 2012). Available at SSRN: https://ssrn.com/abstract=968427 or http://dx.doi.org/10.2139/ssrn.968427

Rossella Argenziano (Contact Author)

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Philipp Schmidt-Dengler

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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