 Real option duopolies with quasi-hyperbolic discountingPengfei Luo, Yuan Tian and Zhaojun Yang Journal of Economic Dynamics and Control, 2020, vol. 111, issue C Abstract: This paper utilizes a real options and game-theoretic approach to consider the strategic real investment in a duopoly market under uncertainty with time-inconsistent preferences resulting from quasi-hyperbolic discounting. We show that the time-consistent agent becomes the leader when s/he interacts with a time-inconsistent rival. If the rival’s time inconsistency is very significant, the leader will optimally behave as if competition did not exist. If the two rivals have about the same time preferences, the leader will accelerate investment and her/his investment threshold will accord with the rival’s preemptive one, which is higher than that determined in the classical time-consistent model. The inefficiency of investment from preemptive competition is mitigated and even eliminated if the heterogeneity among agents is sufficiently high. Our model provides a behavioral explanation for the empirical fact that preemption occurs in some markets but is not present in others. Keywords: Option game; Duopoly competition; Time-inconsistent preferences; Preemptive investment (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:eee:dyncon:v:111:y:2020:i:c:s0165188919302246 DOI: 10.1016/j.jedc.2019.103829 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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