Entry Patterns Over the Product Life Cycle

17 Pages Posted: 13 Oct 2009

See all articles by Óscar Gutiérrez

Óscar Gutiérrez

Autonomous University of Barcelona

Francisco Ruiz-Aliseda

Pontifical Catholic University of Chile

Abstract

We study a game-theoretic real options model of new market entry based on empirical evidence of demand for a new product growing over time and eventually falling. Yet, firms do not know ex ante when this will occur, which creates incentives to update information by delaying irreversible entry. By assuming that the construction of a new productive plant takes some time and is unobservable in the meantime, while operation in the market is not, we show that entry rates increase or decrease under certain conditions related to the rate at which flow profits decrease as more firms enter the industry.

Suggested Citation

Gutiérrez, Óscar and Ruiz-Aliseda, Francisco, Entry Patterns Over the Product Life Cycle. The Manchester School, Vol. 77, Issue 5, pp. 594-610, September 2009. Available at SSRN: https://ssrn.com/abstract=1487297 or http://dx.doi.org/10.1111/j.1467-9957.2009.02113.x

Óscar Gutiérrez (Contact Author)

Autonomous University of Barcelona

Plaça Cívica
Cerdañola del Valles
Barcelona, Barcelona 08193
Spain

Francisco Ruiz-Aliseda

Pontifical Catholic University of Chile ( email )

Vicuna Mackenna 4860
Santiago, 99999
Chile

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