Strategic Investment under Incomplete Information

Dehghani Mohammad H. ()
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Dehghani Mohammad H.: Faculty of Economics, University of Tehran, Tehran, Iran

The B.E. Journal of Theoretical Economics, 2018, vol. 18, issue 2, 23

Abstract: This paper studies how hiding sunk cost of investment would affect investment strategies in a duopoly. The investment would improve profit. If this improvement is larger for the first mover than the second mover, this study finds a unique symmetric equilibrium for a subset of such cases. On the other hand, a larger improvement for the second mover results in a class of symmetric equilibria. For the first case, the surplus to sharing information increases with higher volatility of profit flow and lower uncertainty about the investment cost. For the second case, this surplus grows with both mentioned types of uncertainty.

Keywords: uncertainty; strategic investment; real options; incomplete information; information sharing (search for similar items in EconPapers)
JEL-codes: C7 D81 D82 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1515/bejte-2016-0107

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