TITLE:
Optimal Amount and Timing of Investment in a Stochastic Dynamic Cournot Competition
AUTHORS:
Yasunori Fujita
KEYWORDS:
Cournot Competition, Optimal Stopping Theory, Geometric Brownian Motion, Cost Reduction Investment, Value of Waiting
JOURNAL NAME:
Theoretical Economics Letters,
Vol.6 No.1,
January
19,
2016
ABSTRACT: By making use of the
optimal stopping theory, we construct a multi-stage stochastic Cournot model to
examine the effect of increase in uncertainty and number of entrants on the
amount and timing of strategic cost reduction investment. It is revealed that
firms should enlarge and postpone the investment if 1) the market is more
uncertain, or 2) there exist more firms in the market.