Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324240 
Year of Publication: 
2022
Series/Report no.: 
Center for Mathematical Economics Working Papers No. 708
Publisher: 
Bielefeld University, Center for Mathematical Economics (IMW), Bielefeld
Abstract: 
We study strategic investment in continuous time with positive externalities of changing magnitude. Our model particularly allows for two correlated risk factors. Constructing subgame-perfect equilibria with pure and mixed strategies, we observe the novel effect that it is important for the firms to anticipate preemption. In fact, the presence of a second risk factor implies also an additional strategic risk. We quantify the associated extra waiting cost and show that it is ex ante uncertain whether investment will happen when there is a first- or a second-mover advantage. Our formal arguments involve several methodological contributions. In addition, we provide detailed specifications of our basic model to address various applications.
Subjects: 
Real options
Externalities
Preemption
War of attrition
Optimal stopping
Multidimensional
JEL: 
C61
C73
D21
D43
L13
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Working Paper

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