Irreversible Investment and Learning Expternalities

Jean-Paul Décamps and Thomas Mariotti

Working Papers from Toulouse - GREMAQ

Abstract: In this paper, we develop a continuous time duopoly model of irreversible investment under uncertainty, where each player may learn about the profitability of an investment by observing the experience of his rival, as well as some costless background information. We show that the resulting war of attrition game has a unique, symmetric perfect Bayesian equilibrium. We determine the impact of changes in the cost distribution and the stochastic environment on the timing of investment. Last, we study how the equilibrium is affected by the introduction of a first-mover advantage.

Keywords: INFORMATION; INVESTMENTS; GAMES (search for similar items in EconPapers)
JEL-codes: C73 D82 D83 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2000
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Working Paper: Irreversible Investment and Learning Externalities (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:fth:gremaq:00-534

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