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Market Entry Dynamics with a Second-Mover Advantage
Abstract and Figures
We study a market-entry game with a second-mover advantage. In the symmetric equilibrium, there can be a non-monotonic relationship between the probability with which a player will invest (entry) and the length of time until the deadline. Moreover, the probability of investment can move chaotically as the horizon is extended. In the limit when the period length goes to zero chaotic trajectories arise when the efficiency effect does not hold - that is, when the one-period monopoly profit is less than the total of the one-period duopoly profits. We also show that the presence of chaotic trajectories is associated with a smaller expected delay in entry.
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... (15 April 2007 ¡http://www.filmsite.org/70sintro.html¿.) (Reinganum, 1981); on rent dissipation ( Tirole, 1985, 1987); on market entry dynamics (Smirnov and Wait, 2007); on the sequence of innovations and industry evolution (Reinganum, 1985), (Vickers, 1986); and on divisionalization (Schwartz and Thompson, 1986). The main effects governing R&D and technological rivalry have been mostly analyzed using game theoretical tools. ...
... In 1977, 20th Century Fox would follow suit, and begin releasing its films on videotape In 1977, RCA introduced the first VCRs in the United States based on JVC's system, capable of recording up to four hours on 1/2 " videotape.By the late 70s, Sony's market share in sales of Betamax VCRs was below that of sales of VHS machines; consumers chose the VHS' longer tape time and larger tape size, over Sony's smaller and shorter tape time (of 1 hour). Video sales-the first films on videotape were released by the Magnetic Video Corporation (a company founded in 1968 by Andre Blay in Detroit, Michigan, the first video distribution company)-it licensed fifty films for release from 20th Century (Reinganum, 1981); on rent dissipation (Tirole, 1985, 1987); on market entry dynamics (Smirnov and Wait, 2007); on the sequence of innovations and industry evolution (Reinganum, 1985), (Vickers, 1986); and on divisionalization (Schwartz and Thompson, 1986). ...
The theoretical literature on technological competition has been mostly concerned with various aspects of innovative activity in a single market. By contrast, this paper studies the adoption of a sequence of product innovations in two markets characterized by a common technology base, and illustrates the effects of technological rivalry and preemption. Under a perfect information scenario, it is shown in a two incumbent model that if the innovation is drastic (total replacement of the old product), under certain conditions the fear of being preempted by the entrant forces the firms to diversify their product lines by adopting the innovations across each other's markets. On the other hand, with non-drastic innovation (partial replacement of the old product), it is more likely for the firms to diversify in their own product lines. Out of a class of equilibria characterized under non-drastic innovation, one is optimal in which innovations are adopted in the firms' own markets. In the Pareto inferior equilibria, the firms either adopt innovations in each other's market so that incumbency changes hands or jointly adopt both innovations in two separate product lines. Perfect Bayesian equilibria are characterized under an asymmetric information scenario where one of the firms is assumed to have complete information about the relevant costs of adopting an innovation in a separate product line. If the priors are based on pessimism, it is more often subject to exploitation by the informed firm leading to pooling equilibrium, while optimistism more often leads to diversification and to a competitive market structure in both product lines under a separating equilibrium. In all the cases considered, both innovations are adopted, and in most cases they are adopted by the high cost entrant. The former is socially desirable, but the latter is not. More competitiveness necessarily implies wasteful expenditure by the high cost firm. Lack of competitiveness and technological rivalry, on the other hand, imply that maximum product diversity may not be achieved.
... Comparison of Boots's statement here with that made at the outset of the alliance (see p. 755) captures the distinctiveness of its alternative strategy. Moreover, Sainsbury's extended health and beauty offer included some exclusive niche brands, which Boots had stocked for many years; so, it appears that Sainsbury's was mimicking the Boots offer and gaining a " second-mover advantage " [48]. Formally speaking, each player has a set of strategies (Ally, Alternative). ...
Prompted by a real-life observation in the UK retail market, a two-player Prisoners' Dilemma model of an alliance between two firms is adapted to include the response of a rival firm, resulting in a version of a three-player Prisoners' Dilemma. We use this to analyse the impact on the stability of the alliance of the rival's competition, either with the alliance or with the individual partners. We show that, while strong external pressure on both partners can cause Ally-Ally to become a Nash equilibrium for the two-player Prisoners' Dilemma, weak or asymmetric pressure that plays on the partners' differing objectives can undermine the alliance. As well as providing new insights into how allies should respond if the alliance is to continue, this also illustrates how a third party can most effectively cause the alliance to become unsustainable. We create a new game theoretic framework, adding value to existing theory and the practice of alliance formation and sustainability.
... Comparison of Boots's statement here with that made at the outset of the alliance (see p. 755) captures the distinctiveness of its alternative strategy. Moreover, Sainsbury's extended health and beauty offer included some exclusive niche brands, which Boots had stocked for many years; so, it appears that Sainsbury's was mimicking the Boots offer and gaining a " second-mover advantage " [48]. Formally speaking, each player has a set of strategies (Ally, Alternative). ...
... Comparison of Boots's statement here with that made at the outset of the alliance (see p. 755) captures the distinctiveness of its alternative strategy. Moreover, Sainsbury's extended health and beauty offer included some exclusive niche brands, which Boots had stocked for many years; so, it appears that Sainsbury's was mimicking the Boots offer and gaining a " second-mover advantage " [48]. Formally speaking, each player has a set of strategies (Ally, Alternative). ...
Abstract: Prompted by a real-life observation in the UK retail market, a two-player
Prisoners’ Dilemma model of an alliance between two firms is adapted to include the
response of a rival firm, resulting in a version of a three-player Prisoners’ Dilemma. We use
this to analyse the impact on the stability of the alliance of the rival’s competition, either with
the alliance or with the individual partners. We show that, while strong external pressure on
both partners can cause Ally-Ally to become a Nash equilibrium for the two-player Prisoners’
Dilemma, weak or asymmetric pressure that plays on the partners’ differing objectives can
undermine the alliance. As well as providing new insights into how allies should respond if
the alliance is to continue, this also illustrates how a third party can most effectively cause
the alliance to become unsustainable. We create a new game theoretic framework, adding
value to existing theory and the practice of alliance formation and sustainability.
... Comparison of Boots's statement here with that made at the outset of the alliance (see p. 755) captures the distinctiveness of its alternative strategy. Moreover, Sainsbury's extended health and beauty offer included some exclusive niche brands, which Boots had stocked for many years; so, it appears that Sainsbury's was mimicking the Boots offer and gaining a " second-mover advantage " [48]. Formally speaking, each player has a set of strategies (Ally, Alternative). ...
... As a result, Apple has built a robust SECO with high numbers of players, clearly exploiting the first-mover advantage as identified by Grant [14]. However, Google shows clear signs of growth and their differing approach, in terms of encouraging players to join and enabling a higher level of openness (when compared to the others), shows that they have perhaps learned valuable lessons from Apples' early entry into the sector and are exploiting the second-mover advantage [26]. The study also clearly highlights the interest in this type of SECO and that consumers and developers are excited by the opportunities offered by these developments. ...
The evolution of software ecosystems is the result of the popularity and adoption of common architectural development for multiple product development and represents a significant shift in traditional software development style and process methodology. Currently several organizations are in practice with this new process model that embraces business as one of its central factors and have thrived as a result. There can be no doubt that the development of software ecosystems have caused major players in the software industry to rethink their operating practices and engage with third parties, opening their platforms to external entities to attain business objectives. In this paper we examine four of the organizations that are at the forefront of software ecosystem adoption, specifically for mobile devices and explore their business development models. This investigation explores and compares their business process models in terms of how they engage with the external players in order to develop and distribute software and services in this changing marketplace. The study found some commonalities as well as some salient differences in their business processes and presents an assessment of the health of each mobile OS-centric ecosystem. We conclude that this study will help in further aiding understanding of the business process role in this area of ecosystem software.
Managers and entrepreneurs frequently adhere to the Motto of being the first to market. But the authors have discovered that many pioneers fail, while most current leaders are not pioneers. Using a historical method, the authors try to determine why pioneers fail and early leaders succeed. They have found that market leaders embody five factors critical to success: vision, persistence, commitment, innovation, and asset leverage.
We explore the hold-up problem when parties can make investments simultaneously or sequentially. Sequencing of investments can allow some projects to proceed that would not be feasible with a simultaneous regime. However, a cost of sequencing is that it can disadvantage some parties, reducing their incentive to invest. The mere possibility of sequential investment can prevent trade from occurring; this can be interpreted as a new form of hold-up. If both parties prefer to invest second, as the number of potential investment periods is increased, the subgame-perfect equilibrium can switch between a prisoners' dilemma and a coordination game.
We consider a simultaneous-move, dynamic-entry game. The fixed cost of entry is private information. Entering earlier increases the likelihood of being the monopolist but also increases the likelihood of coordination failure and simultaneous entry. We consider general continuous distributions for the fixed cost, and we characterize the unique symmetric sequential equilibrium in pure strategies. Comparative-statics results are derived. As the time between rounds approaches zero, all of the "action" occurs during an arbitrarily small amount of time. For the Bertrand model, we extend the analysis to allow for n firms. Copyright 2003 by the RAND Corporation.
We discuss three common mechanisms for achieving coordination, with particular reference to the choice of compatibility standards. The first involves explicit communication and negotiation before irrevocable choices are made: It represents what standardization committees do. The second mechanism, by contrast, involves no explicit communication and depends on unilateral irrevocable choices: It succeeds if one agent chooses first and the other(s) follow(s). This is a simple version of "market leadership." We analyze these two mechanisms in a simple model and show that the committee is more likely to achieve coordination. Moreover, although the committee is slower, it outperforms the market mechanism, even when we allow for the value of speed. Third, we examine a hybrid of the first two mechanisms, in which both communication and unilateral preemptive actions are allowed. We show that, far from worsening its performance, unilateral actions improve the committee system. This hybrid system more closely resembles the committee system, the more important coordination is relative to conflict.
The response of Hamiltonian systems with few degrees of freedom to an applied external field with harmonic time dependence is studied within the frame of linear response theory and beyond. The focal point is the comparison of the results of classical and quantum approaches to susceptibility of the system in the quasiclassical limit. In spite of qualitative differences in behaviour of dynamical variables in these approaches, the correspondence theorems provide the basis for the similarity of ensemble-averaged responses for regular as well as for chaotic systems.
The response of Hamiltonian systems with few degrees of freedom to an applied external field with harmonic time dependence is studied within the frame of linear response theory and beyond. The focal point is the comparison of the results of classical and quantum approaches to susceptibility of the system in the quasiclassical limit. In spite of qualitative differences in behaviour of dynamical variables in these approaches, the correspondence theorems provide the basis for the similarity of ensemble-averaged responses for regular as well as for chaotic systems.
The Theory of Industrial Organization is the first primary text to treat the new industrial organization at the advanced-undergraduate and graduate level. Rigorously analytical and filled with exercises coded to indicate level of difficulty, it provides a unified and modern treatment of the field with accessible models that are simplified to highlight robust economic ideas while working at an intuitive level. To aid students at different levels, each chapter is divided into a main text and supplementary section containing more advanced material. Each chapter opens with elementary models and builds on this base to incorporate current research in a coherent synthesis. Tirole begins with a background discussion of the theory of the firm. In part I he develops the modern theory of monopoly, addressing single product and multi product pricing, static and intertemporal price discrimination, quality choice, reputation, and vertical restraints. In part II, Tirole takes up strategic interaction between firms, starting with a novel treatment of the Bertrand-Cournot interdependent pricing problem. He studies how capacity constraints, repeated interaction, product positioning, advertising, and asymmetric information affect competition or tacit collusion. He then develops topics having to do with long term competition, including barriers to entry, contestability, exit, and research and development. He concludes with a "game theory user's manual" and a section of review exercises.
One of the empirical regularities of a product or industry's life cycle is that the one or two firms that eventually emerge as the industry leaders tend to be among the first to enter the industry. In this paper, 1 inquire into the nature of ‘this first mover's advantage’ that might account for the dramatic and persistent differences in performance across firms that have been observed. I identify four categories of first mover advantage related to demand and supply factors, and link these concepts to that of path dependence.
Simultaneous versus sequential play is studied in an extended game. In a preplay stage, players decide whether to select actions in the basic game at the first opportunity or to wait until observing their rivals' first period actions. In one extended game, players first decide when to select actions without committing to actions in the basic game. The equilibrium has a simultaneous play subgame unless payoffs in a sequential play subgame Pareto dominate those payoffs. In another extended game, deciding to select at the first turn requires committing to an action. Both sequential play outcomes are the equilibria only in undominated strategies.
The authors argue that, although decentralization has advantages in finding low-cost solutions, these advantages are accompanied by coordination problems, which lead to delay or duplication of effort or both. Consequently, decentralization is desirable when there is little urgency or a great deal of private information, but it is strictly undesirable in urgent problems when private information is less important. The authors also examine the effect of large numbers and find that coordination problems disappear in the limit if distributions are common knowledge. Copyright 1990 by University of Chicago Press.