Time-To-Build Investment and Uncertainty in Oligopoly
AbstractThis paper examines how time to build alters strategic investment behaviour under oligopoly. Facing demand uncertainty, firms decide whether to invest early or wait until uncertainty has been resolved. A game that captures time-to-build investment is contrasted with another one in which investment is quick in place. We show that a time lag between when and how much to invest reduces the incentive to delay. When investment requires time to complete, early investment occurs more to avoid becoming a follower than to become a strategic investment leader. The opposite is true with quick-in-place investment. A brief welfare analysis is provided.
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Bibliographic InfoPaper provided by School Of Economics, University College Dublin in its series Working Papers with number 200207.
Length: 24 pages
Date of creation: 19 Feb 2002
Date of revision:
Time-to-build Investment; Uncertainty; Strategic Commitment; Flexibility; Oligopoly;
Find related papers by JEL classification:
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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