Investment in Oligopoly Under Uncertainty: Accordion Effect

Bouis, Romain; Huisman, Kuno; Kort, Peter M.

doi:10.2139/ssrn.930373

Cited by 19 publications

(31 citation statements)

References 14 publications

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“…Bouis et al (2009) find that in a market with three firms the investment timing of the first investor lies between the one and the two-firm case. More generally, they show that in equilibria where firms invest sequentially, the timing of the first investor in case of n+2 firms always lies between the timing of the n and n+1 firm case.…”

Section: I) N>2 Rivalsmentioning

confidence: 86%

“…One, followed, for instance, by Williams (1993) for the real estate market, is to assume that ex-ante there are n symmetric firms,   1,..., n  , whose value depends on exogenous state variables and in equilibrium all firms invest at the same time as soon as a given threshold is reached. Another, followed by Bouis et al (2009), is to assume that ex-ante there are more than two firms (three in this case) whose value depends on exogenous state variables but firms enter the market sequentially, providing analytical (or quasi-analytical) solutions for the investment thresholds of each firm. This latter approach seems more realistic, particularly for large oligopolies where the coordination for simultaneous investment is hardly feasible, but analytically very challenging as the number of firms grows.…”

Section: I) N>2 Rivalsmentioning

confidence: 99%

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Developing Real Option Game Models

Azevedo¹,

Paxson

2014

SSRN Journal

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By mixing concepts from both game theoretic analysis and real options theory, an investment decision in a competitive market can be seen as a "game" between firms, as firms implicitly take into account other firms' reactions to their own investment actions. We review two decades of real option game models, suggesting which critical problems have been "solved" by considering game theory, and which significant problems have not been yet adequately addressed. We provide some insights on the plausible empirical applications, or shortfalls in applications to date, and suggest some promising avenues for future research.

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Section: I) N>2 Rivalsmentioning

confidence: 86%

Section: I) N>2 Rivalsmentioning

confidence: 99%

Developing Real Option Game Models

Azevedo¹,

Paxson

2014

SSRN Journal

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“…Thus, the outcome of the game is not affected by the hidden competition and therefore we do not consider this case. 2 Here we can think of the industries where the firms face significant barriers to entry, for example, due to the strict government regulations, exclusive technology, limited resources, patents and licenses.…”

Section: Modelmentioning

confidence: 99%

Entry deterrence and hidden competition

Lavrutich

Huisman

Kort

2016

Journal of Economic Dynamics and Control

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This article studies strategic investment behavior of firms facing an uncertain demand in a duopoly setting. Firms choose both investment timing and the capacity level while facing additional uncertainty about market participants, which is introduced via the concept of hidden competition.We focus on the analysis of possible strategies of the market leader in terms of its capacity choice and on the influence of hidden competition on these strategies.We show that due to hidden competition the follower is more eager to invest. As a result the entry deterrence strategy of the leader becomes more costly and it can only be implemented for smaller market size, leaving additional room for entry accommodation. The leader has incentives to prevent entry of the hidden competitor stimulating simultaneous investment if the hidden firm has a large capacity, and has more incentives to apply entry deterrence in the complementary case of a small capacity of the hidden player. In the first case overinvestment aimed to deter the follower's entry does not occur for a wide range of parameters values.

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“…The economics literature also looks at markets with three competitors (Shugan ,1989;Puu and Marin, 2006;Bouis et al, 2009;Ji, 2009;Elabbasy, et al, 2009;Elsadany et al, 2013;Matouk et. al., 2017;Shibata, 2016;Andaluz and Jarne, 2015;Andaluz, et.…”

Section: Introductionmentioning

confidence: 99%

Exchange-Rate Exposure in a 'Rule of Three' Model

Andrikopoulos,

Dassiou

2018

SSRN Journal

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Abstract.We examine exchange-rate exposure in an international Bertrand model of differentiated goods using a "Rule of Three" (RoT) market structure that allows both within and between countries competition. We construct two versions of our model, a static and a dynamic one. In the latter, we explore how the intertemporal effects of exchange rates on the optimal prices of a firm's domestic and international rivals will affect a firm's long-run exposure in relation to its short-run exposure. We find that in the static version, the addition of a domestic competitor increases the firm's exposure, while the effect on its foreign competitor is ambiguous. In the dynamic case, we find that the gap in exposure between the RoT model and the international duopoly case is larger in the long run than in the short run for the company facing a domestic rival, while the exposure for that firm can be either smaller or larger in the long run relative to the short run. Finally, the firm that remains a monopolist in its domestic market has a smaller exposure in the long run as compared to the short run.

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Investment in Oligopoly Under Uncertainty: Accordion Effect

Cited by 19 publications

References 14 publications

Developing Real Option Game Models

Developing Real Option Game Models

Entry deterrence and hidden competition

Exchange-Rate Exposure in a 'Rule of Three' Model

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