Innovation, Entry into Multiple Markets and Unobserved Heterogeneity

40 Pages Posted: 8 Apr 2009 Last revised: 29 Jul 2014

See all articles by Ganna Pogrebna

Ganna Pogrebna

Columbia University

Christian Schade

Humboldt-Universitaet zu Berlin

Date Written: January 1, 2009

Abstract

This paper considers an experimental market entry game, where the decision problem involves several heterogeneous markets and players have an opportunity to enter several markets simultaneously. We find that groups fail to coordinate on any of the multiple pure strategy Nash equilibria by exhibiting excess entry in the majority of rounds. The likelihood of overentry depends on the market capacity and characteristics of the experimental markets. We also find that, on average, the behavior of the individual participants can be reconciled with the mixed strategy equilibrium prediction. Yet, this prediction fails to account for the differences in the individual profiles. By conducting an econometric estimation that accounts for the unobserved heterogeneity, we show that market capacity, expectations about the number of entrants, the amount of payoff from the previous period and the history of over- or underentry have significant impact on the individual action choice.

Keywords: market entry games, coordination failure, unobserved heterogeneity

JEL Classification: C72, C92, D83, D91

Suggested Citation

Pogrebna, Ganna and Schade, Christian, Innovation, Entry into Multiple Markets and Unobserved Heterogeneity (January 1, 2009). Available at SSRN: https://ssrn.com/abstract=1374409 or http://dx.doi.org/10.2139/ssrn.1374409

Ganna Pogrebna (Contact Author)

Columbia University ( email )

419 Schermerhorn Hall
New York, NY 10027
United States

HOME PAGE: http://www.gannapogrebna.com

Christian Schade

Humboldt-Universitaet zu Berlin ( email )

School of Business and Economics
Unter den Linden 6
Berlin, Berlin 10099
Germany

HOME PAGE: http://enim.wiwi.hu-berlin.de/index-en.html

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