Information Acquisition and Entry

Sjaak Hurkens and Nir Vulkan

Abstract: This paper provides a framework for explicitly modelling the information gathering activities of potential entrants and analyzes how entry behavior is affected by these activities. We assume that information is acquired secretly and that firms face uncertainty about more than one variable. When costs of information gathering are small, entry decisions are as if firms had perfect information so that lack of information cannot cause too much nor too little entry. This as if behavior is even exhibited in specialization equilibria in which different firms obtain information about few but distinct variables. Such equilibria are both socially desirable and robust.

Keywords: Secret Information Acquisition; Entry.

Classification Numbers: C70, D80, M31.

Journal of Economic Behavior and Organization (forthcoming)