Blocking in a Timing Game with Asymmetric Players

28 Pages Posted: 17 Oct 2018

See all articles by Vladimir Smirnov

Vladimir Smirnov

The University of Sydney - School of Economics

Andrew Wait

University of Sydney

Date Written: September 24, 2018

Abstract

We examine innovation as a market-entry timing game with complete information and observable actions. We allow for heterogenous payoffs between players, and for a leader's payoff functions to be multi-peaked and non-monotonic. Assuming that the follower's payoff is non-increasing with the time of the leader's entry, we characterize all pure-strategy subgame perfect equilibria for the two-player asymmetric model, showing that there are at most two equilibria. Firm heterogeneity allows for equilibria with different characteristics than previously examined in the literature. For example, a firm may wish to enter earlier blocking its rival's entry, so as to avoid an anticipated lower future payoff if it waited. A notable feature of this blocking equilibrium is that rents need not be equalized between the leader and follower. We also show that if the followers' payoffs are non-monotonic, the iterative incentives to block each other's product launch may lead to starkly inefficient early entry in a continuous version of the centipede game.

Keywords: timing games, blocking entry, innovation

JEL Classification: C72, L13, O31, O33

Suggested Citation

Smirnov, Vladimir and Wait, Andrew, Blocking in a Timing Game with Asymmetric Players (September 24, 2018). Available at SSRN: https://ssrn.com/abstract=3254683 or http://dx.doi.org/10.2139/ssrn.3254683

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)

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