Time-to-build investment and uncertainty in oligopoly

Gerda Dewit and Dermot Leahy

No 200207, Working Papers from School of Economics, University College Dublin

Abstract: This paper examines how time to build alters strategic investment behaviour under oligopoly. Facing demand uncertainty, firms decide whether to invest early or wait until uncertainty has been resolved. A game that captures time-to-build investment is contrasted with another one in which investment is quick in place. We show that a time lag between when and how much to invest reduces the incentive to delay. When investment requires time to complete, early investment occurs more to avoid becoming a follower than to become a strategic investment leader. The opposite is true with quick-in-place investment. A brief welfare analysis is provided.

Keywords: Time-to-build investment; Uncertainty; Strategic commitment; Flexibility; Oligopoly; Investments; Uncertainty; Oligopolies (search for similar items in EconPapers)
JEL-codes: D80 L13 (search for similar items in EconPapers)
Date: 2002-02
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http://hdl.handle.net/10197/1304 First version, 2002 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ucn:wpaper:200207

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