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Strategic Capital Accumulation with Singular Control

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  • Steg, Jan-Henrik

Abstract

We present a duopoly model of strategic capital accumulation in continuous time with uncertainty, such that investment takes the form of singular control. Spot competition is of Cournot type. For this model there exists a parameterized and Pareto-rankable family of Markov perfect equiblibria in symmetric strategies, according to which implicit collusion induces positive option values. However, preemption can also eliminate any option value in a limiting case corresponding to Bertrand prices.

Suggested Citation

  • Steg, Jan-Henrik, 2013. "Strategic Capital Accumulation with Singular Control," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79948, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc13:79948
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    References listed on IDEAS

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    1. A. Michael Spence, 1979. "Investment Strategy and Growth in a New Market," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 1-19, Spring.
    2. Jan-Henrik Steg, 2012. "Irreversible investment in oligopoly," Finance and Stochastics, Springer, vol. 16(2), pages 207-224, April.
    3. Ioannis Karatzas & Fridrik M. Baldursson, 1996. "Irreversible investment and industry equilibrium (*)," Finance and Stochastics, Springer, vol. 1(1), pages 69-89.
    4. Huisman, K.J.M. & Kort, P.M., 1999. "Effects of Strategic Interactions on the Option Value of Waiting," Other publications TiSEM a867e9f4-7840-4335-83df-e, Tilburg University, School of Economics and Management.
    5. Mason, Robin & Weeds, Helen, 2010. "Investment, uncertainty and pre-emption," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 278-287, May.
    6. Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," The Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 691-721.
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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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