Innovation in a Generalized Timing Game

29 Pages Posted: 24 Aug 2013

See all articles by Vladimir Smirnov

Vladimir Smirnov

The University of Sydney - School of Economics

Andrew Wait

University of Sydney

Date Written: August 9, 2013

Abstract

We examine innovation as a timing game with complete information and observable actions in which firms decide when to enter a market. We characterize all pure strategy subgame perfect equilibria for the two-player symmetric game. In particular, we describe all subgame perfect equilibria when both the leader's and the followers' payoff functions are multi-peaked, non-monotonic and discontinuous. We find that there are potentially multiple equilibria, which could involve: joint adoption by both firms, with and without rent equalization; and, alternatively, single-firm adoption with a second-mover advantage. Economic applications are discussed including process and product innovation and the timing of the sale of an asset.

Keywords: timing games, entry, leader, follower, process innovation, product innovation

JEL Classification: C72, L13, O31, O33

Suggested Citation

Smirnov, Vladimir and Wait, Andrew, Innovation in a Generalized Timing Game (August 9, 2013). Available at SSRN: https://ssrn.com/abstract=2314722 or http://dx.doi.org/10.2139/ssrn.2314722

Vladimir Smirnov

The University of Sydney - School of Economics ( email )

Rm 370 Merewether (H04)
The University of Sydney
Sydney, NSW 2006 2008
Australia

Andrew Wait (Contact Author)

University of Sydney ( email )

School of Economics
University of Sydney, NSW 2006
Australia
+61-2-9351-3060 (Phone)
+61-2-9351-4341 (Fax)

HOME PAGE: http://sydney.edu.au/arts/economics/

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