Delaying Or Deterring Entry: a Game-Theoretic Analysis (Uncertainty, Signalling, Predation, Reputation, Incomplete Information).

Abstract

In many applications of games of incomplete information to entry deterrence, entrants have an incentive but no opportunity to "free ride" on the information generated by the entry of others. But since entrants have incomplete information about the incumbent, observing how he responds to entry by some entrant(s) yields valuable information to the other entrants. However, most of the models in this literature constrain each entrant to enter only at a certain, prespecified point in the game or not at all. When given the opportunity to enter whenever desired, entrants delay their entry to observe what happens to other entrants when they enter. Thus the incumbent is able to delay as well as deter entry. This situation is modelled using a waiting game based on the War of Attrition in which entrants try to "outwait" one another. Using a variety of assumptions about post-entry interaction of the incumbent with each entrant, the unique symmetric sequential equilibrium in a certain class is characterized and studied. The restrictions needed to guarantee a unique equilibrium vary with the flexibility given the players in their choices of actions. However, comparatively few of the properties of the equilibrium differ across these cases.