Endogenous Timing of Actions Under Conflict between Two Types of Second Mover Advantage

Abstract:     
In a model, two players, heterogeneous in their information quality, compete with each other with perfect information about the other player's information quality. If they can decide their timings of actions endogenously, the less-informed player has an incentive to delay her action for learning. On the other hand, the more-informed player wants to delay her action to prevent her information from being revealed, not to enable her to learn. The conflict of these two types of second mover advantages yields a war of attrition. Although both players can benefit from acting as the follower, the gain from a delay for learning is greater than that for preventing the other's learning. Therefore, a cost for the delay in action plays an important role in characterizing the equilibrium. In contrast to the literature, in which only informational externalities are considered, this article shows that the introduction of payoff externalities contributes to different procedures and reasoning processes through which the heterogeneous players' timings of actions are decided endogenously.

Number of Pages in PDF File: 24

JEL Classification: D81, D82

working papers series