ENDOGENOUS LEADERSHIP IN A NEW MARKET

In this article I analyze strategic investment under uncertainty in a new market, where firms face a tradeoff between commitment and flexibi lity. The model predicts asymmetric equilibria under fairly general co nditions, even though firms are ex ante identical and have symmetric o pportunities to enter the market. In equilibrium, one firm commits to early investment and the other firm follows a wait-and-see strategy. I n the ex post outcome, firms end up with asymmetric sizes if the marke t profitability turns out close to, or lower than, expected; firms end up in symmetric position if the market turns out highly profitable. I f uncertainty is small, the model yields (approximately) Stackelberg o utcomes.