How Risk Disciplines Pre-Commitment |
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Authors: | Christophe Caron Thierry Lafay |
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Affiliation: | (1) Laboratoire d’Econométrie, Ecole polytechnique, 1 rue Descartes, 75005 Paris, France;(2) PRISM-Sorbonne, Université Paris I Panthéon Sorbonne, 17 rue de la Sorbonne, 75231 Paris, France |
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Abstract: | This paper studies the entry strategies of firms on risky markets. We focus on markets where demand is affine and cost is linear; moreover, the demand includes a normally distributed random variable. In such a model, we show that the leader’s strategy changes with the level of market risk even when firms are risk neutral. Therefore, the availability of future information for a Stackelberg follower has a feedback effect on the leader’s strategy. We also show that compared with traditional markets with no risk, the basic trade-off between flexibility and pre-commitment is only slightly changed in the qualitative game where firms are free to choose when to enter the market. Electronic supplementary material The online version of this article (doi:) contains supplementary material, which is available to authorized users |
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Keywords: | Cournot competition Stackelberg preemption information value market risk |
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