Markovian Equilibrium in a Model of Investment Under Imperfect Competition

Thomas Fagart

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Abstract: This paper develops and analyzes a dynamic model of partially irreversible investment under cournot competition and stochastic evolution of demand. In this framework, I characterize the markov perfect equilibrium in which player's strategies are continuous in the state variable. There exists a zone in the space of capacities, named the no-move zone, such that if firms capacity belongs to this area, no firm invest nor disinvest at the equilibrium. Thereby, initial asymmetry between firms capacity can be preserved. If firms are outside this area, they invest in order to reached the no-move zone. The equilibrium as an efficiency property: the point of this area which is reached by the firms minimizes the investment cost of the all industry.

Keywords: Capacity investment and disinvestment; dynamic stochastic games; Markov perfect equilibrium; real option games; Investissement en capacité; jeux différentiel; équilibre markovien; option réelle (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-com, nep-mic and nep-ore
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01020398v1
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Published in 2014

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Related works:
Working Paper: Markovian Equilibrium in a Model of Investment Under Imperfect Competition (2014)
Working Paper: Markovian Equilibrium in a Model of Investment Under Imperfect Competition (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01020398

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