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Investment in oligopoly under uncertainty: The accordion effect

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Author Info
Bouis, Romain
Huisman, Kuno J.M.
Kort, Peter M.

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Abstract

This paper studies investments in new markets where more than two (anticipated) identical competitors are present. In case of three firms an accordion effect is detected: an exogenous demand shock results in a change of the wedge between investment thresholds of the first and second investor that is qualitatively different from the change of the wedge between the second and third investment threshold. Furthermore, it turns out that in the three-firm case the investment timing of the first investor lies in between the one and the two-firm case. These results are numerically extended to the n-firm case.

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Publisher Info
Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 27 (2009)
Issue (Month): 2 (March)
Pages: 320-331
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Handle: RePEc:eee:indorg:v:27:y:2009:i:2:p:320-331

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Web page: http://www.elsevier.com/locate/inca/505551

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Keywords: Investment under uncertainty Real Options Competition;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(3), pages 691-721.
  2. Thijssen, J.J.J. & Huisman, K.J.M. & Kort, P.M., 2002. "Symmetric equilibrium strategies in game theoretical real option models," Discussion Paper 81, Tilburg University, Center for Economic Research. [Downloadable!]
  3. Sarkar, Sudipto, 2000. "On the investment-uncertainty relationship in a real options model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 219-225, February. [Downloadable!] (restricted)
  4. Nielsen, Martin J., 2002. "Competition and irreversible investments," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 731-743, May. [Downloadable!] (restricted)
  5. Kort, P.M. & Huisman, K.J.M. & Pawlina, G. & Thijssen, J.J., 2003. "Strategic investment under uncertainty: merging real options with game theory," Discussion Paper 6, Tilburg University, Center for Economic Research. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andreas Park & Lones Smith, 2008. "Caller Number Five and Related Timing Games," Working Papers tecipa-317, University of Toronto, Department of Economics. [Downloadable!]
    Other versions:
  2. Eric Rasmusen & Young-Ro Yoon, 2008. "First versus Second-Mover Advantage with Information Asymmetry about the Size of New Markets," Working Papers 2008-15, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
    Other versions:
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