Overconfidence and timing of entry

Artikel

We analyze the impact of overconfidence on the timing of entry in markets, profits, and welfare using an extension of the quantity commitment game. Players have private information about costs, one player is overconfident, and the other one rational. We find that for slight levels of overconfidence and intermediate cost asymmetries, there is a unique cost-dependent equilibrium where the overconfident player has a higher ex-ante probability of being the Stackelberg leader. Overconfidence lowers the profit of the rational player but can increase that of the overconfident player. Consumer rents increase with overconfidence while producer rents decrease which leads to an ambiguous welfare effect.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Games ; ISSN: 2073-4336 ; Volume: 11 ; Year: 2020 ; Issue: 4 ; Pages: 1-19 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft ; Relation of Economics to Other Disciplines ; Noncooperative Games ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Asymmetric and Private Information; Mechanism Design ; Market Structure, Firm Strategy, and Market Performance: General
• Subject: endogenous timing ; entry ; overconfidence

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Santos-Pinto, Luis ; Pires, Tiago
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2020

Further information

• DOI: doi:10.3390/g11040044
• Handle: http://hdl.handle.net/10419/257462
• Last update: 10.03.2025, 11:43 AM CET