Journal Articles

First versus Second-Mover Advantage with Information Asymmetry about the Size of New Markets

2012, Journal of Industrial Economics

Eric Bennett Rasmusen, Young-Ro Yoon

Abstract

Is it better to move first, or second– to innovate, or to imitate? We show that if one player’s information about the profitability of new markets is only modestly superior, the possibility of foreclosing the market can lead to a first-mover advantage. On the other hand, more extreme information superiority can reverse this, leading to a second-mover advantage. Knowing more surely what is the best choice, the better-informed player wants to delay to keep his information private and the less-informed player wants to delay to learn. Because of this, more accurate information can actually lead to inefficiency by increasing the incentive to delay, and exogenous costs of delay can aid efficiency by neutralizing that strategic incentive. In fact, in some circumstances a player may purposely coarsen his information to deter imitation.

Citation

Rasmusen, Eric Bennett  (2012), "First versus Second-Mover Advantage with Information Asymmetry about the Size of New Markets," (with Young-Ro Yoon). Journal of Industrial Economics, Vol. 60, Issue 3, September, pp. 374–405.

Keywords

Market Entry, First- and Second-Mover Advantage, Payoff Externalities, Informational Externalities, Endogenous Timing

Kelley School of Business

Faculty & Research