Leadership and Early-Mover Advantage

Abstract

This chapter shows how the pure-strategy Nash equilibria in investment games can exhibit a sequencing of investment timing. The chapter is organized as follows. Section 11.1 discusses the basic deterministic game-theoretic framework of Reinganum (1981) that shows why sequential, rather than simultaneous, investment emerges as the equilibrium when duopolist firms hold a shared investment option. Sections 11.2 and 11.3 consider the option to invest in a duopoly and in an oligopoly setting, respectively. Section 11.4 deals with the option to expand production capacity. Such investment-timing games can help explain firm leadership and early-mover advantage.