Investment under uncertainty, competition and regulation

DOI10.3934/JDG.2014.1.579zbMATH Open1332.91115arXiv1309.1844OpenAlexW1931188538MaRDI QIDQ258740FDOQ258740

Authors: Adrien Nguyen Huu 

Publication date: 10 March 2016

Published in: Journal of Dynamics and Games (Search for Journal in Brave)

Abstract: We investigate a randomization procedure undertaken in real option games which can serve as a basic model of regulation in a duopoly model of preemptive investment. We recall the rigorous framework of [M. Grasselli, V. Lecl`ere and M. Ludkovsky, Priority Option: the value of being a leader, International Journal of Theoretical and Applied Finance, 16, 2013], and extend it to a random regulator. This model generalizes and unifies the different competitive frameworks proposed in the literature, and creates a new one similar to a Stackelberg leadership. We fully characterize strategic interactions in the several situations following from the parametrization of the regulator. Finally, we study the effect of the coordination game and uncertainty of outcome when agents are risk-averse, providing new intuitions for the standard case.

Full work available at URL: https://arxiv.org/abs/1309.1844

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zbMATH Keywords

investmentregulationCournot competitionpreemption gamereal option gameStackelberg competition

Mathematics Subject Classification ID

Applications of game theory (91A80) Noncooperative games (91A10) Corporate finance (dividends, real options, etc.) (91G50) Special types of economic markets (including Cournot, Bertrand) (91B54) Financial applications of other theories (91G80)

Cites Work

• The pricing of options and corporate liabilities
• Preemption and Rent Equalization in the Adoption of New Technology
• Strategic investment under uncertainty: a synthesis
• Symmetric equilibrium strategies in game theoretic real option models
• Preemption in a real option game with a first mover advantage and player-specific uncertainty
• Rational hedging and valuation of integrated risks under constant absolute risk aversion.
• Real options games in complete and incomplete markets with several decision makers
• Strategic Delay in a Real Options Model of R&D Competition
• Priority option: the value of being a leader

Cited In (10)

• Financial liquidity: an emergent phenomena
• Caveat preemptor: coordination failure and success in a duopoly investment game
• Welfare implications of mitigating investment uncertainty
• Investment, uncertainty, and price stabilization schemes
• A GAME MODEL OF IRREVERSIBLE INVESTMENT UNDER UNCERTAINTY
• Investment under uncertainty -- does competition matter?
• Investor competition and project risk in venture capital investments
• Investment and uncertainty: Is there a potential role for a common European policy?
• Investment under Uncertainty in Dynamic Conflicts
• Regulation, institutions and aggregate investment: new evidence from OECD countries

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