We investigate the interplay between learning effects and externalities in the problem of competitive investments with uncertain returns. We examine a game theoretic duopoly investment model in which (i) a firm can learn about the profitability of the investment by observing the performance of the first mover and (ii) externalities exist between the investments of two firms. We find a region of a war of attrition between the two firms in which the interplay between externalities and learning gives rise to counterintuitive effects on investment strategies and payoffs. In particular, we find that, contrary to the conventional war of attrition where an increase in benefits for the follower generally delays the first move, an increase in the rate of learning—which tends to benefit the follower—can hasten the first investment. This paper was accepted by James Smith, decision analysis.
Abstr act -The optimal timing analysis of the land development is not only an important topic for real estate firms, but also the focus of the application of option-game theory. This paper constructs a continuous time option game model under asymmetrical duopoly by assuming that different competitive strengths exits between duopoly due to differentiated real estate products, and deduces the equilibrium strategies of asymmetrical duopoly. Thus, sequential strategy equilibrium or instantaneous strategy equilibrium is achieved. But which strategy the firm will employ depends on the different conditions of current demand shock level and the comparative competitive strengths between duopoly. This paper builds three distinctions compared to the models in previous researches.First, the asymmetry between two developers is shown in product quality, and then this paper constructs a differentiated duopoly price competition model. Besides, project value is calculates by a limited time periods cash flow model.
M otivated by several industry examples, we study the interaction between a technology provider introducing a new technology and downstream manufacturers adopting the new technology into their products. The manufacturers, once decided on their adoption timing, both cooperate in making demand-boosting investments to promote the technology and compete in price in the product market. Our main objective is to explore the important question of how the technology provider manipulates manufacturers' adoption timing. We develop a stylized continuous-time multi-stage game-theoretic model with one technology provider and two downstream manufacturers, and derive pure-strategy equilibria for the manufacturers and the technology provider. We find that in the absence of the technology provider's intervention, in equilibrium there is simultaneous adoption when the market competition is relatively mild, and sequential adoption otherwise. In particular, under the sequential-adoption equilibrium, the second manufacturer strategically postpones adoption in order to freeride on the first manufacturer's demand-boosting investment. We show that manufacturers' equilibrium adoption timing is not always in line with the technology provider's interest. To align these different preferences, we suggest that when the competition is in a relatively mild region, the technology provider can make an initial investment to incentivize both manufacturers to adopt the technology early, whereas when the competition is relatively intense, an exclusive period should instead be offered to one manufacturer to keep the other from adopting the technology early. Interestingly, these self-interested interventions often improve the efficiency of the system. Finally, we show that our main findings remain robust when we assume that the effect of manufacturers' demand-boosting investments decreases over time, or when we allow the technology provider to optimize over the technology's licensing fee.
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