Investment under uncertainty, competition and regulation
AbstractWe investigate a randomization procedure undertaken in real option games which can serve as a basic model of regulation in a duopoly model of preemptive investment. We recall the rigorous framework of [M. Grasselli, V. Lecl\`ere and M. Ludkovsky, Priority Option: the value of being a leader, International Journal of Theoretical and Applied Finance, 16, 2013], and extend it to a random regulator. This model generalizes and unifies the different competitive frameworks proposed in the literature, and creates a new one similar to a Stackelberg leadership. We fully characterize strategic interactions in the several situations following from the parametrization of the regulator. Finally, we study the effect of the coordination game and uncertainty of outcome when agents are risk-averse, providing new intuitions for the standard case.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1309.1844.
Date of creation: Sep 2013
Date of revision: Feb 2014
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-28 (All new papers)
- NEP-COM-2013-09-28 (Industrial Competition)
- NEP-CSE-2013-09-28 (Economics of Strategic Management)
- NEP-REG-2013-09-28 (Regulation)
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