Irreversible Investment and Learning Externalities
In this paper, we develop a continuous time duopoly model of irreversible investment under uncertainty, where each player may learn about the profitability of an investment by observing the experience of his rival, as well as some costless background information. We show that the resulting war of attrition game has a unique, symmetric perfect Bayesian equilibrium. We determine the impact of changes in the cost distribution and the stochastic environment on the timing of investment. Last, we study how the equilibrium is affected by the introduction of a first-mover advantage.
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|Date of creation:||2000|
|Date of revision:|
|Publication status:||Published in Journal of Economic Theory, vol. 118, n. 1, September 2004, p. 80-102.|
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