Bloch, F., Fabrizi, S., Lippert, S., 2022. Hiding and herding in market entry. Journal of Economic Theory 206, 105568.
We model entry decisions of rival firms into a new market with uncertain common entry costs, potential product market competition, and experimentation. We show that a herding equilibrium, where firms enter immediately when they learn that the cost is low and are immediately followed by their rival, always exists. We also show the existence of equilibria that avoid herding. In these equilibria, which we refer to as hiding equilibria, uninformed firms coordinate to enter at specific entry dates with positive probability and firms that learned that the cost is low before those dates strategically delay their entry to hide under the cover of the uninformed firms. We show that such hiding equilibria, which do not trigger immediate entry, are more likely to exist with an early than a late entry date, are unique given a fixed entry date, and that equilibrium payoffs are non-monotonic in the entry date. We also study hiding equilibria with multiple entry dates for uninformed firms.