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Competition with Lumpy Investment

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Author Info
Richard J. Gilbert
Richard G. Harris

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Abstract

In markets with increasing returns to scale in investment, competition will occur over both the amount and the timing of new capital construction. This article develops a theory of competition in markets with indivisible and irreversible investments. The consequences of competition depend on the strategies and information available to the competitors. If firms act as Nash competitors with binding contracts, revenues will exceed costs for any number of firms and otherwise identical firms will earn different profits. In the absence of binding contracts, competition over the timing of investment can completely dissipate profits in a subgame perfect equilibrium with two or more firms.

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File URL: http://links.jstor.org/sici?sici=0741-6261%28198422%2915%3A2%3C197%3ACWLI%3E2.0.CO%3B2-B&origin=repec
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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 15 (1984)
Issue (Month): 2 (Summer)
Pages: 197-212
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Handle: RePEc:rje:randje:v:15:y:1984:i:summer:p:197-212

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  1. Marcel Boyer & Pierre Lasserre & Thomas Mariotti & Michel Moreaux, 2001. "Real Options, Preemption, and the Dynamics of Industry Investments," CIRANO Working Papers 2001s-64, CIRANO. [Downloadable!]
    Other versions:
  2. Steven Heubeck, 2009. "Competitive sprawl," Economic Theory, Springer, vol. 39(3), pages 443-460, June. [Downloadable!] (restricted)
  3. BOBTCHEFF Catherine, 2008. "Real Options and Technology Choice under Bertrand Competition," Working Papers 08.16.260, LERNA, University of Toulouse. [Downloadable!]
  4. Doriana Ruffino & Jonathan Treussard, 2006. "Lumps and Clusters in Duopolistic Investment Games: An Early Exercise Premium Approach," Boston University - Department of Economics - Working Papers Series WP2006-044, Boston University - Department of Economics. [Downloadable!]
  5. Marcel Boyer & Pierre Lasserre & Michel Moreaux, 2007. "The Dynamics of Industry Investments," CIRANO Working Papers 2007s-09, CIRANO. [Downloadable!]
  6. Aaron Tornell, 1998. "Reform from Within," NBER Working Papers 6497, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Bergman, Mats A., 1998. "Endogenous Timing of Investments Yields Modified Stackelberg Outcomes," Working Paper Series in Economics and Finance 272, Stockholm School of Economics. [Downloadable!]
  8. Ciaran Driver & Fabrice Goffinet, 1998. "Investment under Demand Uncertainty, Ex-Ante Pricing, and Oligopoly," Review of Industrial Organization, Springer, vol. 13(4), pages 409-423, August. [Downloadable!] (restricted)
  9. Dasgupta, Susmita & Lucas, Robert E. B. & Wheeler, David, 1998. "Small manufacturing plants, pollution, and poverty : new evidence from Brazil and Mexico," Policy Research Working Paper Series 2029, The World Bank. [Downloadable!]
  10. Bruno Versaevel, 2009. "Cumulative Leadership and Entry Dynamics," Post-Print halshs-00371847_v1, HAL. [Downloadable!]
    Other versions:
  11. Marcel Boyer & Pierre Lasserre & Thomas Mariotti & Michel Moreaux, 2000. "Preemption and Rent Dissipation with Multiple Investments," CIRANO Working Papers 2000s-06, CIRANO. [Downloadable!]
  12. Marcel Boyer & Pierre Lasserre & Thomas Mariotti & Michel Moreaux, 2001. "Preemption and Rent Dissipation under Bertrand Competition," Cahiers de recherche du Département des sciences économiques, UQAM 20-04, Université du Québec à Montréal, Département des sciences économiques. [Downloadable!]
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