Learning and collusion in new markets with uncertain entry costs

Francis Bloch (1, 2) , Simona Fabrizi (3, 4) , Steffen Lippert (4, 5)

1 CES - Centre d'économie de la Sorbonne
2 PSE - Paris School of Economics
3 Massey University
4 Centre for Mathematical Social Science
5 Department of Economics [Dunedin]

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.

Mots clés: Preemption; New markets; Project selection; Collusion; Learning

Domaines: Economies et finances

Francis Bloch, Simona Fabrizi, Steffen Lippert. Learning and collusion in new markets with uncertain entry costs. Economic Theory, 2014, 58 (2), pp.273-303. ⟨10.1007/s00199-014-0814-2⟩. ⟨hal-01013188⟩