Preemptive Investment under Uncertainty

Jan-Henrik Steg ()

No 549, Center for Mathematical Economics Working Papers from Center for Mathematical Economics, Bielefeld University

Abstract: This paper provides a general characterization of subgame-perfect equilibria for a strategic timing problem, where two firms have the (real) option to invest irreversibly in some market. Profit streams are uncertain and depend on the market structure. The analysis of the problem emphasizes its dynamic nature and exploits only its economic structure. In particular, the determination of equilibria with preemption is reduced to solving a single class of constrained stopping problems. The general results are applied to typical state-space models from the literature, to point out common deficits in equilibrium arguments and to suggest alternative equilibria that are Pareto improvements.

Keywords: optimal stopping.; equilibrium; Preemption; irreversible investment; real options (search for similar items in EconPapers)
Pages: 37
Date: 2015-11-12
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://pub.uni-bielefeld.de/download/2785971/2785972 First Version, 2015 (application/pdf)

Related works:
Journal Article: Preemptive investment under uncertainty (2018)
Working Paper: Preemptive Investment under Uncertainty (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bie:wpaper:549

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