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On preemption in discrete and continuous time

Author

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  • Steg, Jan-Henrik

    (Center for Mathematical Economics, Bielefeld University)

Abstract

The seminal work of Fudenberg and Tirole (1985) on how preemption erodes the value of an option to wait raises general questions about the relation between models in discrete and continuous time and thus about the interpretation of its central result, relying on an “infinitely fine grid”. Here it is shown that the preemption equilibrium is the limit of the unique symmetric equilibria of the game when reduced to any sequence of grids becoming infinitely fine. Furthermore, additional subgame perfect equilibria using conventional continuous-time mixed strategies are identified.

Suggested Citation

  • Steg, Jan-Henrik, 2016. "On preemption in discrete and continuous time," Center for Mathematical Economics Working Papers 556, Center for Mathematical Economics, Bielefeld University.
    • Handle: RePEc:bie:wpaper:556
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    References listed on IDEAS

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    1. Abraham Neyman, 2013. "Stochastic Games with Short-Stage Duration," Dynamic Games and Applications, Springer, vol. 3(2), pages 236-278, June.
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    8. Riedel, Frank & Steg, Jan-Henrik, 2017. "Subgame-perfect equilibria in stochastic timing games," Journal of Mathematical Economics, Elsevier, vol. 72(C), pages 36-50.
    9. Drew Fudenberg & Jean Tirole, 1985. "Preemption and Rent Equalization in the Adoption of New Technology," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(3), pages 383-401.
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    Cited by:

    1. Whitmeyer Mark, 2018. "A Competitive Optimal Stopping Game," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(1), pages 1-15, January.
    2. Riedel, Frank & Steg, Jan-Henrik, 2017. "Subgame-perfect equilibria in stochastic timing games," Journal of Mathematical Economics, Elsevier, vol. 72(C), pages 36-50.

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    Keywords

    Preemption; discrete time; continuous time; subgame perfect equilibrium; convergence;
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