Preemptive Investment under Uncertainty

Jan-Henrik Steg ()

Papers from arXiv.org

Abstract: This paper provides a general characterization of subgame perfect equilibria for strategic timing problems, where two firms have the (real) option to make an irreversible investment. Profit streams are uncertain and depend on the market structure. The analysis is based directly on the inherent economic structure of the model. In particular, the determination of equilibria with preemptive investment is reduced to solving a single class of constrained optimal stopping problems. The general results are applied to typical state-space models, completing commonly insufficient equilibrium arguments, showing when uncertainty leads to qualitatively different behavior, and establishing additional equilibria that are Pareto improvements.

Date: 2015-11, Revised 2016-05
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Published in Games and Economic Behavior, 110C (2018), pp. 90-119

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http://arxiv.org/pdf/1511.03863 Latest version (application/pdf)

Related works:
Journal Article: Preemptive investment under uncertainty (2018)
Working Paper: Preemptive Investment under Uncertainty (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1511.03863

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