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Strategic delay in market entry

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Two firms are contemplating entry into a market that is viable for only one firm in a good state. We show that even if each firm receives a signal that perfectly reveals a good state, both might strategically delay entry, owing to the fear that the other firm might enter in the same period as well. We also find the conditions where the informed firm will let the rival firm know about the market's profitability and the two will merge to enter the market. We discuss the applications of this model to the oil industry and the generic drug industry.

Keywords: D8; L71

Document Type: Research Article


Affiliations: Department of Economics, University of Manitoba

Publication date: August 1, 2008

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