Affiliation:
1. Stellenbosch University , Stellenbosch , South Africa
Abstract
Abstract
This article shows that the possibility of preemption depends on the form of demand evolution and of the cost function. It characterizes the Markov perfect and open-loop equilibria of a two period game of capacity accumulation. When there is no demand evolution, there is no possibility of preemption under linear prices of investment. Preemption only appears when the demand shock between both periods is large enough.