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Time-to-build investment and uncertainty in oligopoly

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  • Gerda Dewit
  • Dermot Leahy

Abstract

This paper examines how time to build alters strategic investment behaviour under oligopoly. Facing demand uncertainty, firms decide whether to invest early or wait until uncertainty has been resolved. A game that captures time-to-build investment is contrasted with another one in which investment is quick in place. We show that a time lag between when and how much to invest reduces the incentive to delay. When investment requires time to complete, early investment occurs more to avoid becoming a follower than to become a strategic investment leader. The opposite is true with quick-in-place investment. A brief welfare analysis is provided.

Suggested Citation

  • Gerda Dewit & Dermot Leahy, 2002. "Time-to-build investment and uncertainty in oligopoly," Working Papers 200207, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:200207
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    File URL: http://hdl.handle.net/10197/1304
    File Function: First version, 2002
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    References listed on IDEAS

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    More about this item

    Keywords

    Time-to-build investment; Uncertainty; Strategic commitment; Flexibility; Oligopoly; Investments; Uncertainty; Oligopolies;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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