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Project selection: Commitment and competition

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Date
2016
Dewey
Economie industrielle
Sujet
Project selection; Search; Commitment; Markov perfect equilibrium
JEL code
L.L1.L13; L.L1.L10; D.D2.D21
Journal issue
Games and Economic Behavior
Volume
96
Publication date
2016
Article pages
30-48
Publisher
Academic Press
DOI
http://dx.doi.org/10.1016/j.geb.2016.01.011
URI
https://basepub.dauphine.fr/handle/123456789/16062
Collections
  • LEDa : Publications
Metadata
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Author
Atal, Vidya
Bar, Talia
status unknown
Gordon, Sidartha
163511 Laboratoire d'Economie de Dauphine [LEDa]
Type
Article accepté pour publication ou publié
Abstract (EN)
We examine project selection decisions of firms constrained in the number of projects they can handle at once. A new project opportunity arises every period. Taking on a project requires a commitment of uncertain duration, preventing the firm from selecting another project in subsequent periods until the commitment ends. In our dynamic game, when two firms are free of commitment, they move sequentially in random order. Symmetric pure strategy Markov perfect equilibria always exist. In equilibrium, the first mover strategically rejects some projects that are then selected by the second mover, even when the value of the project is the same for both firms. A monopolist rejects more projects, and adopts ones of higher average quality compared to the duopolist. Duopolists select too few projects compared to their jointly optimal behavior. We extend the model to allow for externalities, asymmetry, and n>2n>2 firms.

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