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Demand Jump and Preemption under Irreversible Investment

Author

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  • Fagart Thomas

    (Stellenbosch University, Stellenbosch, South Africa)

Abstract

This article shows that the possibility of preemption depends on the form of demand evolution and of the cost function. It characterizes the Markov perfect and open-loop equilibria of a two period game of capacity accumulation. When there is no demand evolution, there is no possibility of preemption under linear prices of investment. Preemption only appears when the demand shock between both periods is large enough.

Suggested Citation

  • Fagart Thomas, 2024. "Demand Jump and Preemption under Irreversible Investment," Review of Network Economics, De Gruyter, vol. 23(2), pages 87-115.
    • Handle: RePEc:bpj:rneart:v:23:y:2024:i:2:p:87-115:n:1002
    DOI: 10.1515/rne-2024-0034
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    More about this item

    Keywords

    capacity investment; Cournot competition; Markov perfect equilibrium; real option games;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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