Symmetric equilibrium strategies in game theoretic real option models with incomplete information

Laura Delaney

Economics Letters, 2019, vol. 174, issue C, 42-47

Abstract: This paper considers a real options model with incomplete information in a duopoly setting. I show that even in the presence of a first-mover advantage, there are circumstances in which the preemption region is eroded entirely and the only equilibrium strategy is of simultaneous-type: both players should exercise together or not at all. This outcome arises if the price paid by a player from exercising the option simultaneously with his competitor (over exercising alone as a Stackelberg leader) is low. Such an outcome has not been previously recognised in the literature. The underlying information structure has been applied in a one-firm setting to a range of different contexts of late, all of which have competitive pressures in practice. As such, the existence of this equilibrium under certain conditions ought to be recognised.

Keywords: Timing games; Real options; Preemption; Incomplete information (search for similar items in EconPapers)
JEL-codes: C61 C73 D43 D81 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:174:y:2019:i:c:p:42-47

DOI: 10.1016/j.econlet.2018.10.020

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