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Investment and market dominance


Athey, Susan; Schmutzler, Armin (2001). Investment and market dominance. RAND Journal of Economics, 32(1):1-26.

Abstract

We analyze a model of oligopolistic competition with ongoing investment. Special cases include incremental investment, patent races, learning by doing, and network externalities. We investigate circumstances under which a firm with low costs or high quality will extend its initial lead through investments. To this end, we derive a new comparative statics result for general games with strategic substitutes, which applies to our investment game. Finally, we highlight plausible countervailing effects that arise when investments of leaders are less effective than those of laggards, or in dynamic games when firms are sufficiently patient.

Abstract

We analyze a model of oligopolistic competition with ongoing investment. Special cases include incremental investment, patent races, learning by doing, and network externalities. We investigate circumstances under which a firm with low costs or high quality will extend its initial lead through investments. To this end, we derive a new comparative statics result for general games with strategic substitutes, which applies to our investment game. Finally, we highlight plausible countervailing effects that arise when investments of leaders are less effective than those of laggards, or in dynamic games when firms are sufficiently patient.

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65 citations in Web of Science®
72 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:2001
Deposited On:11 Feb 2008 12:21
Last Modified:05 Apr 2016 12:17
Publisher:RAND Corp.
ISSN:0741-6261
Publisher DOI:https://doi.org/10.2307/2696395
Related URLs:http://links.jstor.org/sici?sici=0741-6261%28200121%2932%3A1%3C1%3AIAMD%3E2.0.CO%3B2-F

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