Irreversible investment in oligopoly
Jan-Henrik Steg ()
No 415, Center for Mathematical Economics Working Papers from Center for Mathematical Economics, Bielefeld University
We offer a new perspective on games of irreversible investment under uncertainty in continuous time. The basis is a particular approach to solve the involved stochastic optimal control problems which allows to establish existence and uniqueness of an oligopolistic open loop equilibrium in a very general framework without reliance on any Markovian property. It simultaneously induces quite natural economic interpretation and predictions by its characterization of optimal strategies through first order conditions. The construction of equilibrium policies is then enabled by a stochastic representation theorem. A stepwise specification of the general model leads to further economic conclusions. We obtain explicit solutions for Lévy processes.
Keywords: Equilibrium; Real options; Oligopoly; Stochastic game; Irreversible investment (search for similar items in EconPapers)
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https://pub.uni-bielefeld.de/download/2316269/2319861 First Version, 2009 (application/pdf)
Journal Article: Irreversible investment in oligopoly (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:bie:wpaper:415
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