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The effects of information on strategic investment and welfare

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  • Jacco Thijssen
  • Kuno Huisman
  • Peter Kort

Abstract

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

Suggested Citation

  • Jacco Thijssen & Kuno Huisman & Peter Kort, 2006. "The effects of information on strategic investment and welfare," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(2), pages 399-424, June.
    • Handle: RePEc:spr:joecth:v:28:y:2006:i:2:p:399-424
    DOI: 10.1007/s00199-005-0628-3
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