Preemption Games with Private Information
Abstract
Preemption games are widely used to model patent races, innovation adoption and market entry problems. A previously neglected feature of these problems is that the agents’ states (e.g. R&D …rms’ technological improvements) are kept secret and stochastically change over time. We fully characterize equilibrium in preemption games where private information evolves according to Poisson processes, and provide a strategic rationale for the common wisdom that ‘big things happen fast.’ In the context of patent races we surprisingly …nd that strengthening patent rights need not increase innovation disclosure. Furthermore, we clarify a basic welfare tradeo¤ between duplication costs and preemption: the former likely take place in early stages of the race, and preemption in later stages