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Publication year
Open-Loop Equilibria and Perfect Competition in Option Exercise Games
Resource type
Authors/contributors
- Back, Kerry (Author)
- Paulsen, Dirk (Author)
Title
Open-Loop Equilibria and Perfect Competition in Option Exercise Games
Abstract
The investment boundaries defined by Grenadier (2002) for an oligopoly investment game determine equilibria in open-loop strategies. As closed-loop strategies, they are not equilibria, because any firm by investing sooner can preempt the investments of other firms and expropriate the growth options. The perfectly competitive outcome is produced by closed-loop strategies that are mutually best responses. In this equilibrium, the option to delay investment has zero value, and the simple NPV rule is followed by all firms.
Publication
Review of Financial Studies
Volume
22
Issue
11
Pages
4531-4552
Date
2009
Citation
Back, K., & Paulsen, D. (2009). Open-Loop Equilibria and Perfect Competition in Option Exercise Games. Review of Financial Studies, 22, 4531–4552.
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