IDEAS home Printed from https://ideas.repec.org/a/eee/streco/v49y2019icp301-311.html
   My bibliography  Save this article

A game-theoretic traverse analysis: Price competition and strategic investment

Author

Listed:
  • Mantovi, Andrea
  • Schianchi, Augusto

Abstract

A model of transitional dynamics is set forth in a neo-Austrian setting for the competition between a pair of firms. A leader firm transforms technical advantages into strategic ones by combining price competition with the introduction of a superior technique. Suitably defined master integrals enable one to keep track, in an analytically convenient way, of the neo-Austrian effects occurring along the traverse path. Backward induction reduces the investment timing problem to the fundamental real option of waiting to invest. Structural change is thereby addressed along the lines of modern ‘option-game-theoretic’ strategic investment problems. Conceptual implications of the results are thoroughly discussed.

Suggested Citation

  • Mantovi, Andrea & Schianchi, Augusto, 2019. "A game-theoretic traverse analysis: Price competition and strategic investment," Structural Change and Economic Dynamics, Elsevier, vol. 49(C), pages 301-311.
    • Handle: RePEc:eee:streco:v:49:y:2019:i:c:p:301-311
    DOI: 10.1016/j.strueco.2018.11.009
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0954349X18304028
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.strueco.2018.11.009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Zamagni, Stefano, 1984. "Ricardo and Hayek Effects in a Fixwage Model of Traverse," Oxford Economic Papers, Oxford University Press, vol. 36(0), pages 135-151, Supplemen.
    2. Burmeister,Edwin, 1980. "Capital Theory and Dynamics," Cambridge Books, Cambridge University Press, number 9780521297035, September.
    3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    4. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    5. Burmeister, Edwin, 1974. "Synthesizing the Neo-Austrian and Alternative Approaches to Capital Theory: A Survey," Journal of Economic Literature, American Economic Association, vol. 12(2), pages 413-456, June.
    6. Alexis Jacquemin, 1987. "The New Industrial Organization: Market Forces and Strategic Behavior," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262600145, April.
    7. Pankaj Ghemawat, 1997. "Games Businesses Play: Cases and Models," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262071827, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrea Mantovi & Augusto Schianchi, 2015. "A Neo-Austrian Perspective on the Value of Growth Prospects," Working Paper series 15-41, Rimini Centre for Economic Analysis.
    2. Oscar Gutiérrez & Francisco Ruiz-Aliseda, 2011. "Real options with unknown-date events," Annals of Finance, Springer, vol. 7(2), pages 171-198, May.
    3. Dewit, Gerda & Leahy, Dermot, 2004. "Rivalry in uncertain export markets: commitment versus flexibility," Journal of International Economics, Elsevier, vol. 64(1), pages 195-209, October.
    4. Dawid, Herbert & Kopel, Michael & Kort, Peter M., 2013. "New product introduction and capacity investment by incumbents: Effects of size on strategy," European Journal of Operational Research, Elsevier, vol. 230(1), pages 133-142.
    5. 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.
    6. Tarsalewska, Monika, 2015. "The timing of mergers along the production chain, capital structure, and risk dynamics," Journal of Banking & Finance, Elsevier, vol. 57(C), pages 51-64.
    7. repec:dau:papers:123456789/12655 is not listed on IDEAS
    8. Didier Laussel & Ngo V. Long & Joana Resende, 2020. "The curse of knowledge: having access to customer information can reduce monopoly profits," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 650-675, September.
    9. Pawlina, G. & Kort, P.M., 2001. "Strategic Capital Budgeting : Asset Replacement Under Uncertainty," Discussion Paper 2001-4, Tilburg University, Center for Economic Research.
    10. Enrico Pennings, 2004. "Optimal Pricing And Quality Choice When Investment In Quality Is Irreversible," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 569-589, December.
    11. Arnott, Richard, 2006. "Spatial competition between parking garages and downtown parking policy," Transport Policy, Elsevier, vol. 13(6), pages 458-469, November.
    12. Laussel, Didier & Long, Ngo Van & Resende, Joana, 2019. "The Curse of Knowledge: Having Access to Customer Information Can be Detrimental to Monopoly’s Profit," Discussion paper series HIAS-E-93, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    13. Jean-Paul Chavas & Aashish Mehta, 2004. "Price Dynamics in a Vertical Sector: The Case of Butter," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(4), pages 1078-1093.
    14. Rchard Schmalensee, 2004. "Sunk Costs and Antitrust Barriers to Entry," American Economic Review, American Economic Association, vol. 94(2), pages 471-475, May.
    15. Yongmin Chen & Marius Schwartz, 2013. "Product Innovation Incentives: Monopoly vs. Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 513-528, September.
    16. Hassan, Shakill, 2006. "Optimal timing of defections from price-setting cartels in volatile markets," Economic Modelling, Elsevier, vol. 23(5), pages 792-804, September.
    17. Flavia Cortelezzi & Pierpaolo Giannoccolo & Giovanni Villani, 2011. "Strategic Urban Development Under Uncertainty," The IUP Journal of Financial Economics, IUP Publications, vol. 0(4), pages 7-27, December.
    18. Kort, P.M., 1996. "Optimal R&D Investments of the Firm," Discussion Paper 1996-47, Tilburg University, Center for Economic Research.
    19. Georgiadis, George & Kim, Youngsoo & Kwon, H. Dharma, 2022. "The absence of attrition in a war of attrition under complete information," Games and Economic Behavior, Elsevier, vol. 131(C), pages 171-185.
    20. Ruble, Richard & Versaevel, Bruno & de Villemeur, Étienne, 2010. "On the Timing of Vertical Relationships," IDEI Working Papers 627, Institut d'Économie Industrielle (IDEI), Toulouse, revised 11 Apr 2011.
    21. Gerda Dewit & Dermot Leahy, 2011. "Short‐Run Policy Commitment When Investment Timing Is Endogenous: ‘More Harm Than Good?’," Bulletin of Economic Research, Wiley Blackwell, vol. 63(1), pages 82-107, January.

    More about this item

    Keywords

    Traverse; Golden rule; Backward induction; Real options;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:streco:v:49:y:2019:i:c:p:301-311. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/525148 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.