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Benoît Chevalier-Roignant and Lenos Trigeorgis

Print publication date: 2011

Print ISBN-13: 9780262015998

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262015998.001.0001

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Preemption versus Collaboration in a Duopoly

Preemption versus Collaboration in a Duopoly

(p.359) 12 Preemption versus Collaboration in a Duopoly
Competitive Strategy

Benoît Chevalier-Roignant

Lenos Trigeorgis

The MIT Press

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.

Keywords:   preemptive investments, collusion, stochastic market uncertainty, investment strategy, firm asymmetry

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