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The effects of information on strategic investment and welfare

Thijssen, J.J.J., Huisman, K.J.M. and Kort, P.M. (2006) The effects of information on strategic investment and welfare. Economic Theory, 28 (2). pp. 399-424. ISSN 1432-0479

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The paper analyses the influence of uncertainty and competition on the strategic considerations of a firm’s investment decision, where the firm receives imperfect signals about the profitability of an investment project. We find a preemptive or an attrition equilibrium depending on a trade-off between first and second mover advantages. We show that welfare can be negatively affected by decreasing uncertainty, i.e. more and/or better information. Furthermore, simulations indicate that duopoly leads to higher welfare than monopoly if there are few and relatively non-informative signals, whereas the opposite holds if there are many and relatively informative signals.

Item Type: Article
Institution: The University of York
Academic Units: The University of York > Mathematics (York)
Depositing User: York RAE Import
Date Deposited: 05 Jun 2009 14:23
Last Modified: 05 Jun 2009 14:23
Published Version: http://dx.doi.org/10.1007/s00199-005-0628-3
Status: Published
Publisher: Springer Verlag
Identification Number: 10.1007/s00199-005-0628-3
URI: http://eprints.whiterose.ac.uk/id/eprint/6032

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