Clustering in N-Player Preemption Games

Author(s)
Philipp Schmidt-Dengler, Rossella Argenziano
Abstract

We study a complete information preemption game in continuous time. A finite number of firms decide when to make an irreversible, observable investment. Upon investment, a firm receives flow profits, which decrease in the number of firms that have invested. The cost of investment declines over time exogenously. We characterize the subgame-perfect equilibrium outcome, which is unique up to a permutation of players. When the preemption race among late investors is sufficiently intense, the preemption incentive for earlier investors disappears, and two or more investments occur at the same time. We identify a sufficient condition in terms of model parameters: clustering of investments occurs if the flow profits from consecutive investments are sufficiently close. This shows how clustering can occur in the absence of coordination failures, informational spillovers, or positive payoff externalities.

Organisation(s)
Department of Economics
External organisation(s)
University of Essex
Journal
Journal of the European Economic Association
Volume
12
Pages
368 - 396
ISSN
1542-4766
DOI
https://doi.org/10.1111/jeea.12054
Publication date
04-2014
Peer reviewed
Yes
Austrian Fields of Science 2012
Industrial economics
Portal url
https://ucris.univie.ac.at/portal/en/publications/clustering-in-nplayer-preemption-games(919b819a-9eee-47b3-9ffd-116a6daa65a1).html