Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149006
Authors: 
Steg, Jan-Henrik
Year of Publication: 
2015
Series/Report no.: 
Center for Mathematical Economics Working Papers 549
Abstract: 
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.
Subjects: 
Preemption
real options
irreversible investment
equilibrium
optimal stopping
JEL: 
C61
C73
D21
D43
L12
L13
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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