Publication
Title
Symmetric equilibrium strategies in game theoretic real option models
Author
Abstract
This paper considers the problem of investment timing under uncertainty in a duopoly framework. When both firms want to be the first investor a coordination problem arises. Here, a method is proposed to deal with this coordination problem, involving the use of symmetric mixed strategies. The method is based on Fudenberg and Tirole [Fudenberg, D., Tirole, J., 1985. Preemption and rent equalization in the adoption of new technology. Review of Economic Studies 52, 383-401], where it was designed within a deterministic framework. This paper extends the applicability of this method to a stochastic environment. The need for this is exemplified by the fact that ever more contributions in multiple firm real option models make unsatisfactory assumptions to solve the coordination problem mentioned above. Moreover, our approach allows us to show that in many cases it is incorrect to claim that, in equilibrium, the probability that both firms invest simultaneously while it is only optimal for one firm to invest, is zero. (C) 2012 Elsevier B.V. All rights reserved.
Language
English
Source (journal)
Journal of mathematical economics. - Amsterdam
Publication
Amsterdam : 2012
ISSN
0304-4068
Volume/pages
48:4(2012), p. 219-225
ISI
000307908700004
Full text (Publisher's DOI)
Full text (publisher's version - intranet only)
UAntwerpen
Faculty/Department
Research group
Publication type
Subject
Affiliation
Publications with a UAntwerp address
External links
Web of Science
Record
Identification
Creation 09.10.2012
Last edited 16.07.2017
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