Payoff interdependence and information externalities
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2000-01-14
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This paper studies entry under information and payoff externalities. We consider a sequential investment game with uncertain payoffs where each firm is endowed with a private signal about profitability. It is shown that both over- and under-investment characterize the equilibria and that under-investment only occurs when investments are complements. Further we find that a reverse informational externality is present.