Irreversible Investment under Competition with a Markov Switching Regime
In this paper, we study an investment problem in which two asymmetric firms face competition and the regime characterizing economic conditions follows Markov switching. We derive the value functions and investment thresholds of a leader and a follower. One of the interesting results is that in contrast to the case of no regime switching, even if the current market size is small, both advantaged and disadvantaged firms have an incentive to become a leader in some parameter settings.
|Date of creation:||Apr 2013|
|Contact details of provider:|| Postal: Yoshida-Honmachi, Sakyo-ku, Kyoto 606-8501|
Web page: http://www.kier.kyoto-u.ac.jp/eng/index.html
More information through EDIRC
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.:
- Nishide, Katsumasa & Nomi, Ernesto Kazuhiro, 2009. "Regime uncertainty and optimal investment timing," Journal of Economic Dynamics and Control, Elsevier, vol. 33(10), pages 1796-1807, October.
- Kuno J.M. Huisman & Peter M. Kort, 2015.
"Strategic capacity investment under uncertainty,"
RAND Journal of Economics,
RAND Corporation, vol. 46(2), pages 376-408, 06.
- Huisman, K.J.M. & Kort, P.M., 2013. "Strategic Capacity Investment Under uncertainty," Discussion Paper 2013-003, Tilburg University, Center for Economic Research.
- Baba, Naohiko & Packer, Frank, 2009. "From turmoil to crisis: Dislocations in the FX swap market before and after the failure of Lehman Brothers," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1350-1374, December.
- Naohiko Baba & Frank Packer, 2009. "From turmoil to crisis: dislocations in the FX swap market before and after the failure of Lehman Brothers," BIS Working Papers 285, Bank for International Settlements.
- Bouis, Romain & Huisman, Kuno J.M. & Kort, Peter M., 2009. "Investment in oligopoly under uncertainty: The accordion effect," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 320-331, March.
- Bouis, R. & Huisman, K.J.M. & Kort, P.M., 2006. "Investment in Oligopoly under Uncertainty : The Accordion Effect," Discussion Paper 2006-69, Tilburg University, Center for Economic Research.
- Pawlina, Grzegorz & Kort, Peter M., 2005. "Investment under uncertainty and policy change," Journal of Economic Dynamics and Control, Elsevier, vol. 29(7), pages 1193-1209, July.
- Pawlina, G. & Kort, P.M., 2001. "Investment Under Uncertainty and Policy Change," Discussion Paper 2001-5, Tilburg University, Center for Economic Research.
- Pawlina, G. & Kort, P.M., 2005. "Investment under uncertainty and policy change," Other publications TiSEM dc869876-eaea-427c-ad5f-5, Tilburg University, School of Economics and Management.
- John Driffill & Turalay Kenc & Martin Sola, 2013. "Real Options With Priced Regime-Switching Risk," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 16(05), pages 1-30.
- John Driffill & Martin Sola & Turalay Kenc, 2009. "Real Options with Priced Regime-Switching Risk," Department of Economics Working Papers 2009-09, Universidad Torcuato Di Tella.
- Huisman, K.J.M. & Kort, P.M., 1999. "Effects of Strategic Interactions on the Option Value of Waiting," Discussion Paper 1999-92, Tilburg University, Center for Economic Research.
- Murray Carlson & Adlai Fisher & Ron Giammarino, 2004. "Corporate Investment and Asset Price Dynamics: Implications for the Cross-section of Returns," Journal of Finance, American Finance Association, vol. 59(6), pages 2577-2603, December.
- Harjoat S. Bhamra & Lars-Alexander Kuehn & Ilya A. Strebulaev, 2010. "The Levered Equity Risk Premium and Credit Spreads: A Unified Framework," Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 645-703, February.
- Grenadier, Steven R, 1996. " The Strategic Exercise of Options: Development Cascades and Overbuilding in Real Estate Markets," Journal of Finance, American Finance Association, vol. 51(5), pages 1653-1679, December.
- Felipe L. Aguerrevere, 2009. "Real Options, Product Market Competition, and Asset Returns," Journal of Finance, American Finance Association, vol. 64(2), pages 957-983, 04.
- Driffill John & Raybaudi Marzia & Sola Martin, 2003. "Investment Under Uncertainty with Stochastically Switching Profit Streams: Entry and Exit over the Business Cycle," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 7(1), pages 1-40, April.
- Nielsen, Martin J., 2002. "Competition and irreversible investments," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 731-743, May. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:kyo:wpaper:861. 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: (Ryo Okui)
If references are entirely missing, you can add them using this form.