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Strategic Investment under Incomplete Information

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  • Dehghani Mohammad H.

    (Faculty of Economics, University of Tehran, Tehran, Iran)

Abstract

This paper studies how hiding sunk cost of investment would affect investment strategies in a duopoly. The investment would improve profit. If this improvement is larger for the first mover than the second mover, this study finds a unique symmetric equilibrium for a subset of such cases. On the other hand, a larger improvement for the second mover results in a class of symmetric equilibria. For the first case, the surplus to sharing information increases with higher volatility of profit flow and lower uncertainty about the investment cost. For the second case, this surplus grows with both mentioned types of uncertainty.

Suggested Citation

  • Dehghani Mohammad H., 2018. "Strategic Investment under Incomplete Information," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(2), pages 1-23, July.
    • Handle: RePEc:bpj:bejtec:v:18:y:2018:i:2:p:23:n:5
    DOI: 10.1515/bejte-2016-0107
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    References listed on IDEAS

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    More about this item

    Keywords

    uncertainty; strategic investment; real options; incomplete information; information sharing;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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