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A game-theoretic traverse analysis: Price competition and strategic investment

Andrea Mantovi () and Augusto Schianchi

Structural Change and Economic Dynamics, 2019, vol. 49, issue C, 301-311

Abstract: A model of transitional dynamics is set forth in a neo-Austrian setting for the competition between a pair of firms. A leader firm transforms technical advantages into strategic ones by combining price competition with the introduction of a superior technique. Suitably defined master integrals enable one to keep track, in an analytically convenient way, of the neo-Austrian effects occurring along the traverse path. Backward induction reduces the investment timing problem to the fundamental real option of waiting to invest. Structural change is thereby addressed along the lines of modern ‘option-game-theoretic’ strategic investment problems. Conceptual implications of the results are thoroughly discussed.

Keywords: Traverse; Golden rule; Backward induction; Real options (search for similar items in EconPapers)
JEL-codes: C7 O4 (search for similar items in EconPapers)
Date: 2019
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Structural Change and Economic Dynamics is currently edited by F. Duchin, H. Hagemann, M. Landesmann, R. Scazzieri, A. Steenge and B. Verspagen

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