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Project selection: Commitment and competition

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  • Atal, Vidya
  • Bar, Talia
  • Gordon, Sidartha

Abstract

We examine project selection decisions of firms constrained in the number of projects they can handle at once. A new project opportunity arises every period. Taking on a project requires a commitment of uncertain duration, preventing the firm from selecting another project in subsequent periods until the commitment ends. In our dynamic game, when two firms are free of commitment, they move sequentially in random order. Symmetric pure strategy Markov perfect equilibria always exist. In equilibrium, the first mover strategically rejects some projects that are then selected by the second mover, even when the value of the project is the same for both firms. A monopolist rejects more projects, and adopts ones of higher average quality compared to the duopolist. Duopolists select too few projects compared to their jointly optimal behavior. We extend the model to allow for externalities, asymmetry, and n>2 firms.

Suggested Citation

  • Atal, Vidya & Bar, Talia & Gordon, Sidartha, 2016. "Project selection: Commitment and competition," Games and Economic Behavior, Elsevier, vol. 96(C), pages 30-48.
    • Handle: RePEc:eee:gamebe:v:96:y:2016:i:c:p:30-48
    DOI: 10.1016/j.geb.2016.01.011
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    Cited by:

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    2. Khalifa Mohammed Al-Sobai & Shaligram Pokharel & Galal M. Abdella, 2020. "Perspectives on the Capabilities for the Selection of Strategic Projects," Sustainability, MDPI, vol. 12(19), pages 1-20, October.
    3. Philippe Bich & Rida Laraki, 2014. "On the Existence of Approximate Equilibria and Sharing Rule Solutions in Discontinuous Games," Working Papers hal-01071678, HAL.

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    More about this item

    Keywords

    Project selection; Search; Commitment; Markov perfect equilibrium;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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