Demand Jump and Preemption under Irreversible Investment

Fagart Thomas ()
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Fagart Thomas: Stellenbosch University, Stellenbosch, South Africa

Review of Network Economics, 2024, vol. 23, issue 2, 87-115

Abstract: This article shows that the possibility of preemption depends on the form of demand evolution and of the cost function. It characterizes the Markov perfect and open-loop equilibria of a two period game of capacity accumulation. When there is no demand evolution, there is no possibility of preemption under linear prices of investment. Preemption only appears when the demand shock between both periods is large enough.

Keywords: capacity investment; Cournot competition; Markov perfect equilibrium; real option games (search for similar items in EconPapers)
JEL-codes: D43 L13 L25 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/rne-2024-0034

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