Preemptive investment under uncertainty

Arbeitspapier

This paper provides a general characterization of subgame-perfect equilibria for a strategic timing problem, where two firms have the (real) option to invest irreversibly in some market. Profit streams are uncertain and depend on the market structure. The analysis of the problem emphasizes its dynamic nature and exploits only its economic structure. In particular, the determination of equilibria with preemption is reduced to solving a single class of constrained stopping problems. The general results are applied to typical state-space models from the literature, to point out common deficits in equilibrium arguments and to suggest alternative equilibria that are Pareto improvements.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Center for Mathematical Economics Working Papers ; No. 549

Classification and Topics

• Classification: Wirtschaft ; Optimization Techniques; Programming Models; Dynamic Analysis ; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games ; Firm Behavior: Theory ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Monopoly; Monopolization Strategies ; Oligopoly and Other Imperfect Markets
• Subject: Preemption ; real options ; irreversible investment ; equilibrium ; optimal stopping

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Steg, Jan-Henrik
• Event: Veröffentlichung
• (who): Bielefeld University, Center for Mathematical Economics (IMW)
• (where): Bielefeld
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/149006
• URN: urn:nbn:de:0070-pub-27859710
• Last update: 10.03.2025, 11:41 AM CET