Irreversible, Unobservable, Costly Investment in the Presence of Rivals
AbstractI identify circumstances in which an agent wants to make a costly but unobservable irreversible investment that affects the subsequent noisy economic environment. In equilibrium, rivals may eventually infer that the agent is strong even though it initially appeared weak, so long as enough "strength" is seen subsequently. Comparative statics reveal that the higher is the rivals' opportunity cost, the more likely is the agent not to make the costly investment in equilibrium. In addition, as the amount of noise decreases, the probability that the agent invests increases and the probability that a challenge occurs decreases.
Download InfoIf 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.
Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number pitchik-96-01.
Length: 23 pages
Date of creation: 05 Jul 1996
Date of revision:
Contact details of provider:
Postal: 150 St. George Street, Toronto, Ontario
Phone: (416) 978-5283
Chain-store paradox; Discrimination; Entry deterrence; Investment; Noise; Reputation; Signalling; Takeovers;
Other versions of this item:
- Carolyn Pitchik, 1998. "Irreversible, Unobservable, Costly Investment in the Presence of Rivals," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 77-91, February.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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.:
- Paul Milgrom & John Roberts, 1980.
"Predation, Reputation, and Entry Deterrence,"
427, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Dixit, Avinash, 1980.
"The Role of Investment in Entry-Deterrence,"
Royal Economic Society, vol. 90(357), pages 95-106, March.
- Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
- Hilke, John C. & Nelson, Philip B., 1987. "Caveat innovator : Strategic and structural characteristics of new product introductions," Journal of Economic Behavior & Organization, Elsevier, vol. 8(2), pages 213-229, June.
- Bagwell, Kyle, 1995.
"Commitment and observability in games,"
Games and Economic Behavior,
Elsevier, vol. 8(2), pages 271-280.
- Carmichael, H Lorne, 1989. "Self-Enforcing Contracts, Shirking, and Life Cycle Incentives," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 65-83, Fall.
- Kreps, David M. & Wilson, Robert, 1982.
"Reputation and imperfect information,"
Journal of Economic Theory,
Elsevier, vol. 27(2), pages 253-279, August.
- Lundberg, Shelly J & Startz, Richard, 1983.
"Private Discrimination and Social Intervention in Competitive Labor Markets,"
American Economic Review,
American Economic Association, vol. 73(3), pages 340-47, June.
- Richard Startz & Lundberg, . "Private Discrimination and Social Intervention in Competitive Labor Markets," Rodney L. White Center for Financial Research Working Papers 19-81, Wharton School Rodney L. White Center for Financial Research.
- Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
- Jeremy I. Bulow & John Geanakoplos & Paul D. Klemperer, 1983. "Multimarket Oligopoly," Cowles Foundation Discussion Papers 674, Cowles Foundation for Research in Economics, Yale University.
- Pitchik Carolyn, 1993. "Commitment, Reputation, and Entry Deterrence," Games and Economic Behavior, Elsevier, vol. 5(2), pages 268-287, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePEc Maintainer).
If references are entirely missing, you can add them using this form.