American Economic Review Vol. 100 No. 4 2010
Preemption Games: Theory and Experiment
Abstract
Several impatient investors with private costs C i face an indivisible irreversible investment opportunity whose value V is governed by geometric Brownian motion. The first investor i to seize the opportunity receives the entire payoff, V-C i . We characterize the symmetric Bayesian Nash equilibrium for this game. A laboratory experiment confirms the model's main qualitative predictions: competition drastically lowers the value at which investment occurs; usually the lowest-cost investor preempts the other investors; observed investment patterns in competition (unlike monopoly) are quite insensitive to changes in the Brownian parameters. Support is more qualified for the prediction that markups decline with cost.
- DOI
- 10.1257/aer.100.4.1778
- Volume
- 100
- Issue
- 4
- Pages
- 1778-1803
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref