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Coordination and Cooperation in Investment Timing with Externalities?

  • Etienne Billette de Villemeur

    (EQUIPPE, Université de Lille, Villeneuve d'Ascq F-59655, France)

  • Richard Ruble

    ()

    (Université de Lyon, Lyon F-69007, France; EMLYON Business School, Ecully F-69134 & CNRS, GATE Lyon Saint Etienne, Ecully F-69130, France)

  • Bruno Versaevel

    ()

    (Université de Lyon, Lyon F-69007, France; EMLYON Business School, Ecully F-69134 & CNRS, GATE Lyon Saint Etienne, Ecully F-69130, France)

We characterize sequential (preemption) and simultaneous (coordination) equilibria, as well as joint-value maximizing (cooperation) solutions, in a model of investment timing allowing for externalities in both flow pro…ts and investment costs. For two ex-ante symmetric …rms, either preemption or attrition occur depending on the size of the investment externality. Coordination is less likely with more discounting, as in a repeated game, and more likely with higher growth and volatility. Optimal cooperation involves either monopoly or duopoly investment, the latter being either symmetric or asymmetric. Finally, these characterizations are validated by applications to standard speci…cations of capacity accumulation and of R&D investment. In the former setup, coordination is likelier if installed capacities and lumpy investments are both large. With R&D input choices, if investment synergies are large, coordination and cooperation result in the same outcomes.

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Paper provided by Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure in its series Working Papers with number 1128.

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Date of creation: 2011
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Handle: RePEc:gat:wpaper:1128
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  1. Boyer, Marcel & Lasserre, Pierre & Moreaux, Michel, 2012. "A dynamic duopoly investment game without commitment under uncertain market expansion," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 663-681.
  2. Grenadier, Steven R. & Wang, Neng, 2005. "Investment timing, agency, and information," Journal of Financial Economics, Elsevier, vol. 75(3), pages 493-533, March.
  3. Bruno Versaevel & Désiré Vencatachellum, 2006. "R&D Delegation in a Duopoly with Spillovers," Working Papers 0610, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  4. Thijssen, J.J.J. & Huisman, K.J.M. & Kort, P.M., 2002. "Symmetric Equilibrium Strategies in Game Theoretical Real Option Models," Discussion Paper 2002-81, Tilburg University, Center for Economic Research.
  5. Dermot Leahy & J Peter Neary, 2004. "Symmetric Research Joint Ventures - Cooperative Substitutes and Complements," Working Papers 200417, School of Economics, University College Dublin.
  6. Hoppe, Heidrun C., 2000. "Second-mover advantages in the strategic adoption of new technology under uncertainty," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 315-338, February.
  7. Jacco Thijssen & Kuno Huisman & Peter Kort, 2006. "The effects of information on strategic investment and welfare," Economic Theory, Springer, vol. 28(2), pages 399-424, 06.
  8. Mason, Robin & Weeds, Helen, 2010. "Investment, uncertainty and pre-emption," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 278-287, May.
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