Preemption and Rent Dissipation under Bertrand Competition

Marcel Boyer, Pierre Lasserre, Thomas Mariotti and Michel Moreaux

No 20-04, Cahiers de recherche du Département des sciences économiques, UQAM from Université du Québec à Montréal, Département des sciences économiques

Abstract: We study a simple duopoly model of preemption with multiple investments and instantaneous Bertrand competition on a market of finite size driven by stochastic taste shocks. Different patterns of equilibria may arise, depending on the importance of the real option effect. If the average growth rate of the market is close to the risk free rate, or if the volatility of demand shocks is high, no dissipation of rents occur in equilibrium, despite instantaneous Bertrand competition. If these conditions do not hold, the equilibrium investment timing is suboptimal, and the firms' long-run capacities may depend on the initial market conditions. Our conclusions contrast sharply with standard rent dissipation results.

Keywords: Preemption; rent dissipation; lumpy investment; real options (search for similar items in EconPapers)
JEL-codes: C73 D43 D92 L13 (search for similar items in EconPapers)
Pages: 25
Date: 2001-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.unites.uqam.ca/eco/cahiers/wp20-04.pdf Main text (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden (http://www.unites.uqam.ca/eco/cahiers/wp20-04.pdf [301 Moved Permanently]--> https://unites.uqam.ca/eco/cahiers/wp20-04.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cre:uqamwp:20-04

Access Statistics for this paper

More papers in Cahiers de recherche du Département des sciences économiques, UQAM from Université du Québec à Montréal, Département des sciences économiques P.O. Box 8888, Downtown Station, Montreal (Canada) Quebec, H3C 3P8. Contact information at EDIRC.
Bibliographic data for series maintained by Stéphane Pallage ().