TO RACE OR TO WAIT? AN ANALYSIS OF THE TRADE-OFFS BETWEEN UNCERTAINTY AND FIRST MOVER ADVANTAGE IN A STRATEGIC SETTING

Abstract

A firm’s choice in timing of its market entry can have a significant impact on the profitability of its investment as well as that of competing investments (existing and potential). More importantly, timing decision of firms in key industries of developing economies can have a profound impact on an economy’s growth rates. This paper considers how a firm’s decision to enter into a new market can create information externalities by providing its competitors with information about the market. This paper also sets up a theoretical model to evaluate how a firm may tradeoff its first mover advantage to preempt its competitor with excess capacity against risk of overinvestment in such a market. Using this model we consider the possible outcomes of firms’ competition in such an environment and we also discuss about the efficacy of some government policies in inducing investment into a new market.