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

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  • 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
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    References listed on IDEAS

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    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

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