Investment under uncertainty, competition and regulation

Adrien Nguyen Huu (1, 2)

1 FiME Lab - Laboratoire de Finance des Marchés d'Energie
2 Department of Mathematics and Statistics

We investigate a randomization procedure undertaken in real option games which can serve as a raw model of regulation in a duopoly model of preemptive investment. We recall the rigorous framework of [Grasselli, M.R., Leclère, V. and Ludkovski, M. Priority option: the value of being a leader. Math. and Fin. Econ., 2013] and extend it to the presence of a random regulator. This model generalizes and unifies the different competitive frameworks proposed in the literature, and creates a new one similar to a Stackelberg leadership. We fully characterize strategic interactions in the several situations following from the parametrization of the regulator. Finally, we study the effect of the coordination game and uncertainty of outcome when agents are risk-averse, providing new intuitions for the standard case.

Mots clés: real option game; timing game; regulator; asymmetry; Stackelberg competition; Cournot competition

Domaines: Gestion des risques [q-fin.RM]; Optimisation et contrôle [math.OC]

Adrien Nguyen Huu. Investment under uncertainty, competition and regulation. 2013. ⟨hal-00831263v2⟩