Coinvestment games under uncertainty

Benoît Chevalier-Roignant, Stéphane Villeneuve, Fabien Delpech and May-Line Grapotte
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Benoît Chevalier-Roignant: EM - EMLyon Business School
Stéphane Villeneuve: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Fabien Delpech: INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - INSA - Institut National des Sciences Appliquées - UT - Université de Toulouse
May-Line Grapotte: INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - INSA - Institut National des Sciences Appliquées - UT - Université de Toulouse

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Abstract: There are many business situations in which investments by a supplier and a producer ("coinvest-ments") are both necessary for either of them to grasp a business opportunity. For instance, better quality tanks are needed to manufacture reliable hydrogen-powered vehicles. One of these two firms, typically the one facing a lower cost, may be more willing to invest, but the cautionary attitude of the other delays the coinvestment. We model supply-chain interactions in a classical tractable way to derive the firms' net present values (NPVs) upon coinvestment and determine their Nash equilibrium investment (timing) strategies. Firms coinvest when the real options of the weaker firm is ‘deep in the money.' These business situations are likely to be affected by evolving market circumstances, in particular due to changes in the demand dynamics or endogenous decision (by, say, the supplier) to conduct research and development (R&D). We investigate related model extensions, which confirm the robustness of our key result.

Date: 2025-06
New Economics Papers: this item is included in nep-gth, nep-inv and nep-mic
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Published in Journal of Economic Dynamics and Control, 2025, 175, pp.105098. ⟨10.1016/j.jedc.2025.105098⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05033712

DOI: 10.1016/j.jedc.2025.105098

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