Preemption versus Collaboration in a Duopoly
PublisherThe MIT Press
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This chapter examines preemptive investments and the possibility of tacit collusion among firms, delaying investment until a later date. It first presents the original deterministic model by Fudenberg and Tirole (1985) to analyze preemption versus cooperation. It then extends this in more complex settings to account for stochastic market uncertainty. It discusses the option to invest in a new market and the option to expand an existing market. Throughout the chapter, the impact of firm asymmetry on the equilibrium investment behavior of firms is considered.