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Autoren: 
Steg, Jan-Henrik
Thijssen, Jacco
Datum: 
2015
Reihe/Nr.: 
Center for Mathematical Economics Working Papers 541
Zusammenfassung: 
In this paper we analyse a dynamic model of investment under uncertainty in a duopoly, in which each firm has an option to switch from the present market to a new market. We construct a subgame perfect equilibrium in mixed strategies and show that both preemption and attrition can occur along typical equilibrium paths. In order to determine the attrition region a two-dimensional constrained optimal stopping problem needs to be solved, for which we characterize the non-trivial stopping boundary in the state space. We explicitly determine Markovian equilibrium stopping rates in the attrition region and show that there is always a positive probability of eventual preemption, contrasting the deterministic version of the model. A simulation-based numerical example illustrates the model and shows the relative likelihoods of investment taking place in attrition and preemption regions.
Schlagwörter: 
stochastic timing games
preemption
war of attrition
real options
Markov perfect equilibrium
two-dimensional optimal stopping
JEL: 
C61
C73
D21
D43
L13
Persistent Identifier der Erstveröffentlichung: 
Dokumentart: 
Working Paper

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