Negative and Positive Effects of Competition in a Preemption Game

Toru Suzuki

No 2010-085, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: Agents compete to acquire a limited economic opportunity of uncertain profitability. Each agent decides how much he acquires public signals before making investment under fear of preemption. I show that equilibria have various levels of efficiency under mild competition. The eect of competition on the equilibrium strategy is dierent depending on which class of equilibrium we focus on. However, when competitive pressure is sufficiently high, there exists a unique equilibrium. Finally, I show that the eect of competition on efficiency is dierent between the common value and the private value setting. Strong competition leads to the least efficient equilibrium for the common value setting but efficiency can be improved by competition in the private value setting.

Keywords: Competition; Preemption game; Strategic real option (search for similar items in EconPapers)
JEL-codes: C73 D83 (search for similar items in EconPapers)
Date: 2010-12-02
New Economics Papers: this item is included in nep-bec, nep-com and nep-gth
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