Anticipation in innovative investment under oligopolistic competition

S. Wrzaczek, P.M. Kort

Research output: Contribution to journalArticleScientificpeer-review

Abstract

The paper studies the firms’ optimal investment behavior in a dynamic duopoly framework. Embodied technological progress means later generations are more productive. The resulting model is a differential game combined with a vintage capital goods structure. Since such a framework has not been analyzed before, existing concepts have to be modified.

After deriving that our solution is time consistent, our numerical analysis first shows that a technological breakthrough generates equilibrium investment behavior that admits anticipation waves, which are enhanced by competition. Second, the shape of these anticipation waves depends on the age of the underlying capital good: for younger capital goods the upward peaks are more pronounced, whereas for older ones this holds for the downward peaks. Third, we show that if a firm is able to anticipate on future technological developments, this results in a higher market share in the long run.
Original languageEnglish
Pages (from-to)2812-2823
JournalAutomatica
Volume48
Issue number11
DOIs
Publication statusPublished - Nov 2012

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Numerical analysis

Keywords

  • vintage capital
  • embodied technological progress
  • differential games
  • optimal control theory
  • maximum principle

Cite this

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Anticipation in innovative investment under oligopolistic competition. / Wrzaczek, S.; Kort, P.M.

In: Automatica, Vol. 48, No. 11, 11.2012, p. 2812-2823.

Research output: Contribution to journalArticleScientificpeer-review

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