Entry Patterns Over the Product Life Cycle

CMS-EMS Working Paper No. 1380

27 Pages Posted: 10 Feb 2004

See all articles by Oscar Gutiérrez Arnáiz

Oscar Gutiérrez Arnáiz

University of Zaragoza

Francisco Ruiz-Aliseda

Pontifical Catholic University of Chile

Date Written: November 2006

Abstract

We study a new real options model of oligopolistic 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 can occur, which creates incentives to update information by delaying irreversible entry. By assuming that the construction of a new plant takes some time and is unobservable in the meantime, while operation in the market is not, we show that entry rates accelerate or decelerate under certain conditions related to the rate at which individual profit decreases as more firms enter the industry.

Keywords: Bayesian Real Options, Investment Lags, Irreversibility, Strategic Competition, S-shaped Entry Paths

JEL Classification: C73, D43, D92, L13, M30

Suggested Citation

Gutiérrez Arnáiz, Oscar and Ruiz-Aliseda, Francisco, Entry Patterns Over the Product Life Cycle (November 2006). CMS-EMS Working Paper No. 1380. Available at SSRN: https://ssrn.com/abstract=498585 or http://dx.doi.org/10.2139/ssrn.498585

Oscar Gutiérrez Arnáiz

University of Zaragoza ( email )

Economics of Business
Gran Via 2
50005 Zaragoza
Spain
+34976761803 (Phone)

Francisco Ruiz-Aliseda (Contact Author)

Pontifical Catholic University of Chile ( email )

Vicuna Mackenna 4860
Santiago, 99999
Chile

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