We study the development of an industry-evolution of capacity, production and prices- in a continuous-time real-options model under various assumptions on competition. Investment takes the form of sequential acquisition of indivisible units of capacity. As benchmarks, we determine the optimal investment policy of an efficient social surplus maximizer, and that of a protected monopoly. Then we study two types of duopoly: when firms are committed ex ante to invest in alternating order so that the preemptive bahavior is rules out; and when the firms are not committed to any specific capacity of invertments, a generalization of Fudenberg & Tirole (1985) to a stochastic real-options context.
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Paper provided by Toulouse - GREMAQ in its series Papers with number
98.497.
Find related papers by JEL classification: C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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