Quick or Persistent? Strategic Investment Demanding Versatility
In this paper we analyse a dynamic model of investment under uncertainty in a duopoly, in which each firm has an option to switch from the present market to a new market. We construct a subgame perfect equilibrium in mixed strategies and show that both preemption and attrition can occur along typical equilibrium paths. In order to determine the attrition region a two-dimensional constrained optimal stopping problem needs to be solved, for which we characterize the non-trivial stopping boundary in the state space. We explicitly determine Markovian equilibrium stopping rates in the attrition region and show that there is always a positive probability of eventual preemption, contrasting the deterministic version of the model. A simulation-based numerical example illustrates the model and shows the relative likelihoods of investment taking place in attrition and preemption regions.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
Strategic Investment to Mitigate Transition Risks
This paper investigates strategic investments needed to mitigate transition risks, particularly focusing on sectors significantly impacted by the shift to a low-carbon economy. It emphasizes the importance of tailored se…
NavigateStrategic Irreversible Investment
This paper studies oligopolistic irreversible investment with closed-loop strategies. These permit fully dynamic interactions that result in much richer strategic behavior than previous studies with open-loop strategies …
Strategic Storage Investment in Electricity Markets
Arbitrage is one important revenue source for energy storage in electricity markets. However, a large amount of storage in the market will impact the energy price and reduce potential revenues. This can lead to strategic…
STraM: A strategic network design model for national freight transport decarbonization
National freight transport models are valuable tools for assessing the impact of various policies and investments on achieving decarbonization targets under different future scenarios. However, these models struggle to a…
M6 Investment Challenge: The Role of Luck and Strategic Considerations
This article investigates the influence of luck and strategic considerations on performance of teams participating in the M6 investment challenge. We find that there is insufficient evidence to suggest that the extreme S…