Timing of entry under externalities

Ping LIN, Kamal SAGGI

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

3 Citations (Scopus)

Abstract

This paper constructs a model where two firms simultaneously choose their time of entry into a market. Under sequential entry, the second entrant is assumed to face a lower entry cost because of positive externalities from the first firm's entry. The model generates sequential entry if the magnitude of the externality is large relative to the post-entry duopoly profit, and simultaneous entry otherwise. In a sequential entry equilibrium, the first entrant fares better than the second and the second entrant does not necessarily enter too late from the viewpoint of social welfare. When firms have different costs of production, the efficient firm is more likely to enter first.
Original languageEnglish
Pages (from-to)211-225
Number of pages15
JournalJournal of Economics
Volume75
Issue number3
DOIs
Publication statusPublished - 1 Apr 2002

Fingerprint

Sequential entry
Externalities
Social welfare
Firm entry
Positive externalities
Cost of production
Entry costs
Profit
Duopoly

Keywords

  • duopoly
  • entry
  • externality

Cite this

LIN, Ping ; SAGGI, Kamal. / Timing of entry under externalities. In: Journal of Economics. 2002 ; Vol. 75, No. 3. pp. 211-225.
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Timing of entry under externalities. / LIN, Ping; SAGGI, Kamal.

In: Journal of Economics, Vol. 75, No. 3, 01.04.2002, p. 211-225.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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AB - This paper constructs a model where two firms simultaneously choose their time of entry into a market. Under sequential entry, the second entrant is assumed to face a lower entry cost because of positive externalities from the first firm's entry. The model generates sequential entry if the magnitude of the externality is large relative to the post-entry duopoly profit, and simultaneous entry otherwise. In a sequential entry equilibrium, the first entrant fares better than the second and the second entrant does not necessarily enter too late from the viewpoint of social welfare. When firms have different costs of production, the efficient firm is more likely to enter first.

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KW - externality

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