Caveat preemptor: Coordination failure and success in a duopoly investment game

Etienne Billette de Villemeur, Richard Ruble and Bruno Versaevel

Economics Letters, 2013, vol. 118, issue 2, 250-254

Abstract: We build on Mason and Weeds’ (2010) model of duopoly investment under uncertainty by allowing high initial values of the profit shock as in Huisman and Kort (1999). Persistent first-mover advantage increases the likelihood of immediate simultaneous investment. In contrast with previous models where these have been interpreted as “mistakes”, such simultaneous investment outcomes can be optimal for the industry. Clustering of investments is thus both more likely, and more likely to be a desirable outcome.

Keywords: Real options; Investment valuation; Pre-emption (search for similar items in EconPapers)
JEL-codes: C73 D43 D92 L13 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Working Paper: Caveat Preemptor: Coordination Failure and Success in a Duopoly Investment Game (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:118:y:2013:i:2:p:250-254

DOI: 10.1016/j.econlet.2012.10.034

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