Coordination and Cooperation in Investment Timing with Externalities?

Etienne Billette de Villemeur, Richard Ruble and Bruno Versaevel

No 1128, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: We characterize sequential (preemption) and simultaneous (coordination) equilibria, as well as joint-value maximizing (cooperation) solutions, in a model of investment timing allowing for externalities in both flow pro…ts and investment costs. For two ex-ante symmetric …rms, either preemption or attrition occur depending on the size of the investment externality. Coordination is less likely with more discounting, as in a repeated game, and more likely with higher growth and volatility. Optimal cooperation involves either monopoly or duopoly investment, the latter being either symmetric or asymmetric. Finally, these characterizations are validated by applications to standard speci…cations of capacity accumulation and of R&D investment. In the former setup, coordination is likelier if installed capacities and lumpy investments are both large. With R&D input choices, if investment synergies are large, coordination and cooperation result in the same outcomes.

Keywords: Investment Timing; Real Options; Simultaneous Equilibrium; Joint-Value Maximization; Cooperation; Investment Externalities (search for similar items in EconPapers)
JEL-codes: C73 D43 D92 L13 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-gth
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Citations: View citations in EconPapers (1)

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Working Paper: Coordination and Cooperation in Investment Timing with Externalities ? (2011)
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