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ENTRY PATTERNS OVER THE PRODUCT LIFE CYCLE *
Author(s) -
GUTIÉRREZ ÓSCAR,
RUIZALISEDA FRANCISCO
Publication year - 2009
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2009.02113.x
Subject(s) - unobservable , economics , ex ante , incentive , microeconomics , product (mathematics) , empirical evidence , product lifecycle , industrial organization , monetary economics , new product development , econometrics , macroeconomics , philosophy , geometry , mathematics , management , epistemology
We study a game‐theoretic real options model of new market entry based on empirical evidence of demand for a new product growing over time and eventually falling. Yet, firms do not know ex ante when this will occur, which creates incentives to update information by delaying irreversible entry. By assuming that the construction of a new productive plant takes some time and is unobservable in the meantime, while operation in the market is not, we show that entry rates increase or decrease under certain conditions related to the rate at which flow profits decrease as more firms enter the industry.