 Preemption Games: Theory and Experiment*Steven T Anderson, Daniel Friedman and Ryan Oprea Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz Abstract: Several investors face an irreversible investment opportunity whose value V is governed by Brownian motion with upward drift and random expiration. The �rst investor i to seize the opportunity before expiration receives the current V less a privately known cost Ci; the other investors receive nothing. We characterize Bayesian Nash Equilibrium (BNE) for this game, extending previously known results. We also report a laboratory experiment with 72 subjects randomly matched into 600 tri- opolies. As predicted in BNE, subjects in triopolies invested at lower values than in monopolies, changes in Brownian parameters signi�cantly altered investment values in monopoly but not in triopoly; and the lowest cost investor in a triopoly usually preempted the others. Evidence was mixed on other BNE predictions, e.g., whether higher cost brings smaller markups. Overall, subjects' earnings came rather close to the BNE prediction. Keywords: Preemption; Incomplete Information; Irreversible Investment; Laboratory Experiment (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cdl:ucscec:qt0pr4g8h1 Access Statistics for this paper More papers in Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz Contact information at EDIRC. |
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