Preemption and Rent Dissipation under Bertrand Competition
We study a simple duopoly model of preemption with multiple investments and instantaneous Bertrand competition on a market of finite size driven by stochastic taste shocks. Different patterns of equilibria may arise, depending on the importance of the real option effect. If the average growth rate of the market is close to the risk free rate, or if the volatility of demand shocks is high, no dissipation of rents occur in equilibrium, despite instantaneous Bertrand competition. If these conditions do not hold, the equilibrium investment timing is suboptimal, and the firms' long-run capacities may depend on the initial market conditions. Our conclusions contrast sharply with standard rent dissipation results.
|Date of creation:||Feb 2001|
|Contact details of provider:|| Postal: P.O. Box 8888, Downtown Station, Montreal (Canada) Quebec, H3C 3P8|
Phone: (514) 987-4114
Fax: (514) 987-8494
Web page: http://www.uqam.ca/economie/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John V. Leahy, 1993. "Investment in Competitive Equilibrium: The Optimality of Myopic Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 1105-1133.
- Fudenberg, Drew & Tirole, Jean, 1987. "Understanding Rent Dissipation: On the Use of Game Theory in Industrial Organization," American Economic Review, American Economic Association, vol. 77(2), pages 176-183, May.
- Boyer, M. & Moreaux, M., 1988.
"Endogenous Rationing In A Differentiated Product Duopoly,"
Cahiers de recherche
8830, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Boyer, Marcel & Moreaux, Michel, 1989. "Endogenous Rationing in a Differentiated Product Duopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 877-888, November.
- Boyer, M. & Moreaux, M., 1988. "Endogenous Rationing in a Differentiated Product Duopoly," Cahiers de recherche 8830, Universite de Montreal, Departement de sciences economiques.
- Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-526, June.
- Dixit, Avinash, 1980.
"The Role of Investment in Entry-Deterrence,"
Royal Economic Society, vol. 90(357), pages 95-106, March.
- Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
- Gilbert, Richard & Harris, Richard G., 1984.
"Competition with Lumpy Investment,"
Department of Economics, Working Paper Series
qt11v5q20z, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Katz, Michael L & Shapiro, Carl, 1987. "R&D Rivalry with Licensing or Imitation," American Economic Review, American Economic Association, vol. 77(3), pages 402-420, June.
- Marcel Boyer & Michel Moreaux, 1988.
"Rational Rationing in Stackelberg Equilibria,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 103(2), pages 409-414.
- Drew Fudenberg & Jean Tirole, 1985. "Preemption and Rent Equalization in the Adoption of New Technology," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 383-401.
- B. Curtis Eaton & Richard G. Lipsey, 1980.
"Capital, Commitment, and Entry Equilibrium,"
397, Queen's University, Department of Economics.
- Posner, Richard A, 1975. "The Social Costs of Monopoly and Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 807-827, August.
When requesting a correction, please mention this item's handle: RePEc:cre:uqamwp:20-04. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stéphane Pallage)
If references are entirely missing, you can add them using this form.