Markovian Equilibrium in a Model of Investment Under Imperfect Competition

Thomas Fagart

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: This paper develops and analyzes a dynamic model of partially irreversible investment under cournot competition and stochastic evolution of demand. In this framework, I characterize the markov perfect equilibrium in which player's strategies are continuous in the state variable. There exists a zone in the space of capacities, named the no-move zone, such that if firms capacity belongs to this area, no firm invest nor disinvest at the equilibrium. Thereby, initial asymmetry between firms capacity can be preserved. If firms are outside this area, they invest in order to reached the no-move zone. The equilibrium as an efficiency property: the point of this area which is reached by the firms minimizes the investment cost of the all industry

Keywords: Capacity investment and disinvestment; dynamic stochastic games; Markov perfect equilibrium; real option games (search for similar items in EconPapers)
JEL-codes: D43 L13 L25 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2014-05
New Economics Papers: this item is included in nep-com, nep-ind and nep-ore
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ftp://mse.univ-paris1.fr/pub/mse/CES2014/14039.pdf (application/pdf)

Related works:
Working Paper: Markovian Equilibrium in a Model of Investment Under Imperfect Competition (2014)
Working Paper: Markovian Equilibrium in a Model of Investment Under Imperfect Competition (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:14039

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