The effects of information on strategic investment and welfare
The paper analyses the influence of uncertainty and competition on the strategic considerations of a firm’s investment decision, where the firm receives imperfect signals about the profitability of an investment project. We find a preemptive or an attrition equilibrium depending on a trade-off between first and second mover advantages. We show that welfare can be negatively affected by decreasing uncertainty, i.e. more and/or better information. Furthermore, simulations indicate that duopoly leads to higher welfare than monopoly if there are few and relatively non-informative signals, whereas the opposite holds if there are many and relatively informative signals. Copyright Springer-Verlag Berlin/Heidelberg 2006
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Volume (Year): 28 (2006)
Issue (Month): 2 (June)
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Cahiers de recherche du Département des sciences économiques, UQAM
20-10, Université du Québec à Montréal, Département des sciences économiques.
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