Investment under uncertainty, competition and regulation

Adrien Nguyen Huu (1)

1 IMPA - Instituto Nacional de Matemática Pura e Aplicada

We investigate a randomization procedure undertaken in real option games which can serve as a basic model of regulation in a duopoly model of preemptive investment. We recall the rigorous framework of [M. Grasselli, V. Leclère and M. Ludkovsky, Priority Option: the value of being a leader, International Journal of Theoretical and Applied Finance, 16, 2013], and extend it to 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. Journal of Dynamics and Games, 2014, 1 (4), pp.579 -- 598. ⟨hal-00831263v4⟩