The Timing of Repeated and Unrepeated Monopoly Investment under Wear and Tear and Demand

Jörg Borrmann and Gert Brunekreeft

No 8, Bremen Energy Working Papers from Bremen Energy Research

Abstract: In an intertemporal model, we analyze the timing of irreversible and lumpy monopoly investment under certainty. There are two reasons for investing, i.e. wear and tear leading to replacement investment and demand growth leading to expansion investment. Both in a single investment setting and in a repeated investment setting, we find that a firm maximizing discounted social welfare invests earlier than an identical firm maximizing discounted profits. The investment date of an identical firm maximizing a discounted convex combination of social welfare and profits lies between these polar cases. All results apply both to replacement investment and to expansion investment.

Keywords: Expansion investment; Investment timing; Monopoly; Repeated investment; Replacement investment (search for similar items in EconPapers)
JEL-codes: D42 G00 L20 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2011-05
New Economics Papers: this item is included in nep-com
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://bremen-energy-research.de/wp-content/bewp/bewp08.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bei:00bewp:0008

Access Statistics for this paper

More papers in Bremen Energy Working Papers from Bremen Energy Research
Bibliographic data for series maintained by Anna Pechan ().