Get access

First Versus Second Mover Advantage with Information Asymmetry about the Profitability of New Markets

Authors


  • We have benefited a lot from the comments and suggestions of the Editor and anonymous referees. All remaining errors are the authors’ responsibility.

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.

Ancillary