Artikel

Overconfidence and timing of entry

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.

Language
Englisch

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

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

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

DOI
doi:10.3390/g11040044
Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Artikel

Associated

  • Santos-Pinto, Luis
  • Pires, Tiago
  • MDPI

Time of origin

  • 2020

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