Journal Article

Preemption Games with Private Information

Hugo A. Hopenhayn and Francesco Squintani

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 78, issue 2, pages 667-692
Published in print April 2011 | ISSN: 0034-6527
Published online February 2011 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1093/restud/rdq021
Preemption Games with Private Information

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  • Game Theory and Bargaining Theory
  • Information, Knowledge, and Uncertainy

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Preemption games are widely used to model economic problems such as patent races. We introduce private information into these games and allow for this information to stochastically change over time. This reflects, e.g. how R&D competitors improve their innovations over time and keep these innovations secret before patenting them. The analysis initially appears intractable because of the complexity of the equilibrium updating of beliefs on opponents' information. However, we demonstrate the existence of a class of equilibria and calculate these equilibria in closed form. We find that the expected durations in these equilibria are longer than when players' information is public but, in some cases, shorter than in the collusive outcome. Hence, R&D secrecy slows down innovation disclosure.

Keywords: Stopping games; Private information; Patent races; C73; D82

Journal Article.  11338 words. 

Subjects: Game Theory and Bargaining Theory ; Information, Knowledge, and Uncertainy

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