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Investment in oligopoly under uncertainty: The accordion effect

Author

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  • Bouis, Romain
  • Huisman, Kuno J.M.
  • Kort, Peter M.

Abstract

This paper studies investments in new markets where more than two (anticipated) identical competitors are present. In case of three firms an accordion effect is detected: an exogenous demand shock results in a change of the wedge between investment thresholds of the first and second investor that is qualitatively different from the change of the wedge between the second and third investment threshold. Furthermore, it turns out that in the three-firm case the investment timing of the first investor lies in between the one and the two-firm case. These results are numerically extended to the n-firm case.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:indorg:v:27:y:2009:i:2:p:320-331
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    References listed on IDEAS

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    1. Thijssen, Jacco J.J. & Huisman, Kuno J.M. & Kort, Peter M., 2012. "Symmetric equilibrium strategies in game theoretic real option models," Journal of Mathematical Economics, Elsevier, vol. 48(4), pages 219-225.
    2. 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.
    3. Huisman, K.J.M. & Kort, P.M. & Pawlina, G. & Thijssen, J.J.J., 2004. "Strategic investment under uncertainty : Merging real options with game theory," Other publications TiSEM 57b69510-cf54-479e-938e-d, Tilburg University, School of Economics and Management.
    4. Baldursson, Fridrik M., 1998. "Irreversible investment under uncertainty in oligopoly," Journal of Economic Dynamics and Control, Elsevier, vol. 22(4), pages 627-644, April.
    5. Bouis, R. & Huisman, K.J.M. & Kort, P.M., 2006. "Investment in Oligopoly under Uncertainty : The Accordion Effect," Other publications TiSEM 61ded6eb-63fa-4233-8733-b, Tilburg University, School of Economics and Management.
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    11. Sarkar, Sudipto, 2000. "On the investment-uncertainty relationship in a real options model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 219-225, February.
    12. Huisman, K.J.M. & Kort, P.M. & Pawlina, G. & Thijssen, J.J.J., 2003. "Strategic Investment Under Uncertainty : Merging Real Options with Game Theory," Discussion Paper 2003-6, Tilburg University, Center for Economic Research.
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    More about this item

    Keywords

    Investment under uncertainty Real Options Competition;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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