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The dynamics of preemptive and follower investments with overlapping ownership

Dimitrios Zormpas and Richard Ruble

Journal of Economic Dynamics and Control, 2021, vol. 129, issue C

Abstract: We study how overlapping ownership affects investments in a preemption race with market uncertainty. Internalization of rival payoffs delays follower entry if product market effects are moderate, implying longer incumbency which intensifies the race to lead. Preemptive and follower investment thresholds increase with volatility as in standard real option models but firm value can decrease, and greater volatility makes internalization more profitable. From a welfare perspective there is a tradeoff between a dynamic benefit and a static cost of overlapping ownership. Whereas it is socially optimal not to have any overlapping ownership in some markets, at low volatility levels we find firms have an insufficient incentive to internalize.

Keywords: Common ownership; Dynamic competition; Real options (search for similar items in EconPapers)
JEL-codes: C73 G32 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:129:y:2021:i:c:s016518892100110x

DOI: 10.1016/j.jedc.2021.104175

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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