Preemption in a real option game with a first mover advantage and player-specific uncertainty
There are two players both of whom can invest in an project by paying a fixed cost \(I>0\). Players' payoffs are influenced by a random shock. The shock for player \(i\) is a stochastic process \(Y_i\) which follows a geometric Brownian motion \(dY_i/Y_i=\mu dt+\sigma dz_i, Y_i(0)=y_i,\) where \(z_1\) and \(z_2\) are correlated Wiener processes. Each moment \( t\) player \(i\) obtains the discounted payoff \(e^{-rt}D_{k,l} Y_i(t)\) which depends on the investment status \(k\) of the player. Here \(k=1\) if she has invested and k=0, otherwise, and \(l\) denotes the other player's investment status. It is assumed that \(D_{10}>D_{11}>D_{00}\geq D_{01}\) and there is a first mover advantage in that \(D_{10}-D_{00}>D_{11}-D_{01}\). This game is an extension of the model studied by Huisman and Kort (1999). It is shown that there exists an equilibrium which has different properties from those in standard real option games driven by common stochastic shocks.
- Rivalry and uncertainty in complementary investments with dynamic market sharing
- Preemption with a second-mover advantage
- Strategic investment under incomplete information
- Investment timing and capacity decisions with time-to-build in a duopoly market
- Competitive real options under private information
- Preemption games under Lévy uncertainty
- Alertness, leadership, and nascent market dynamics
- Investment under uncertainty, competition and regulation
- On the investment-uncertainty relationship in a real option model with stochastic volatility
- Strategic investment with positive externalities
- Developing real option game models
- Symmetric equilibrium strategies in game theoretic real option models
- Fear of the market or fear of the competitor? Ambiguity in a real options game
- Investments under strategic competition and uncertainty: a literature review on real option games
- Dynkin ghost games with asymmetry and consolation
This page was built for publication: Preemption in a real option game with a first mover advantage and player-specific uncertainty
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q617690)
