Lack of Preemption Under Irreversible Investment

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 article considers the classic model of irreversible investment under imperfect competition and stochastic demand and characterizes the markov perfect equilibrium. To do so, I introduce a new way to define strategies permitting the players to create endogenous jumps in the state variable. The markov equilibrium is then similar to the open-loop equilibrium, meaning that the irreversibility of investment does not create a preemption effect in this model. This is due to the form of investment's cost, which creates an incentive to invest as soon as possible, reducing the strategic interaction to the one of a static problem

Keywords: Capacity investment; Cournot competition; Markov-perfect equilibrium; Real option games; Differential games (search for similar items in EconPapers)
JEL-codes: D43 L13 L25 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2015-10
New Economics Papers: this item is included in nep-com
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ftp://mse.univ-paris1.fr/pub/mse/CES2015/15079.pdf (application/pdf)

Related works:
Working Paper: Lack of Preemption Under Irreversible Investment (2015)
Working Paper: Lack of Preemption Under Irreversible Investment (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:15079

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