Advanced Search
MyIDEAS: Login to save this paper or follow this series

Irreversible investment in oligopoly

Contents:

Author Info

  • Jan-Henrik Steg

    ()
    (Institute of Mathematical Economics, Bielefeld University)

Abstract

We offer a new perspective on games of irreversible investment under uncertainty in continuous time. The basis is a particular approach to solve the involved stochastic optimal control problems which allows to establish existence and uniqueness of an oligopolistic open loop equilibrium in a very general framework without reliance on any Markovian property. It simultaneously induces quite natural economic interpretation and predictions by its characterization of optimal strategies through first order conditions. The construction of equilibrium policies is then enabled by a stochastic representation theorem. A stepwise specification of the general model leads to further economic conclusions. We obtain explicit solutions for Lévy processes.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imw.uni-bielefeld.de/papers/files/imw-wp-415.pdf
File Function: First version, 2009
Download Restriction: no

Bibliographic Info

Paper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 415.

as in new window
Length: 22 pages
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:bie:wpaper:415

Contact details of provider:
Postal: Postfach 10 01 31, 33501 Bielefeld
Phone: +49(0)521-106-4907
Web page: http://www.imw.uni-bielefeld.de/
More information through EDIRC

Related research

Keywords: irreversible investment; stochastic game; oligopoly; real options; equilibrium;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Frank Riedel & Xia Su, 2011. "On irreversible investment," Finance and Stochastics, Springer, Springer, vol. 15(4), pages 607-633, December.
  2. A. Michael Spence, 1979. "Investment Strategy and Growth in a New Market," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 1-19, Spring.
  3. Robert S. Pindyck, 1986. "Irreversible Investment, Capacity Choice, and the Value of the Firm," NBER Working Papers 1980, National Bureau of Economic Research, Inc.
  4. Ioannis Karatzas & Fridrik M. Baldursson, 1996. "Irreversible investment and industry equilibrium (*)," Finance and Stochastics, Springer, Springer, vol. 1(1), pages 69-89.
  5. Novshek, William, 1985. "On the Existence of Cournot Equilibrium," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 52(1), pages 85-98, January.
  6. Kerry Back & Dirk Paulsen, 2009. "Open-Loop Equilibria and Perfect Competition in Option Exercise Games," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 22(11), pages 4531-4552, November.
  7. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 026272040x, December.
  8. Bertola, Giuseppe, 1998. "Irreversible investment," Research in Economics, Elsevier, Elsevier, vol. 52(1), pages 3-37, March.
  9. Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 15(3), pages 691-721.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Giorgio Ferrari, 2012. "On an Integral Equation for the Free-Boundary of Stochastic, Irreversible Investment Problems," Papers 1211.0412, arXiv.org, revised Jul 2013.
  2. Huisman, K.J.M. & Kort, P.M., 2013. "Strategic Capacity Investment Under uncertainty," Discussion Paper, Tilburg University, Center for Economic Research 2013-003, Tilburg University, Center for Economic Research.
  3. Steg, Jan-Henrik, 2013. "Strategic Capital Accumulation with Singular Control," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79948, Verein für Socialpolitik / German Economic Association.
  4. Giorgio Ferrari & Frank Riedel & Jan-Henrik Steg, 2013. "Continuous-Time Public Good Contribution under Uncertainty," Papers 1307.2849, arXiv.org.
  5. Thijssen, Jacco J.J. & Huisman, Kuno J.M. & Kort, Peter M., 2012. "Symmetric equilibrium strategies in game theoretic real option models," Journal of Mathematical Economics, Elsevier, vol. 48(4), pages 219-225.
  6. Giorgio Ferrari, 2012. "On an Integral Equation for the Free Boundary of Stochastic, Irreversible Investment Problems," Working Papers, Bielefeld University, Center for Mathematical Economics 471, Bielefeld University, Center for Mathematical Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bie:wpaper:415. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dr. Frederik Herzberg).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.