Investment Coordination and Demand Complementarities
Posted: 22 Jun 1999
This paper establishes necessary conditions for demand complementarity to imply investment coordination failure and explores the welfare implications of coordinated investment. Our main results caution against demand complementarities as a motive for investment coordination. We find that: 1) generally, a strict notion of complementarity (Hicks) is necessary for the existence of an investment coordination problem, and 2) that when the problem does exist, coordination lowers social welfare without countervailing sectoral asymmetries.
JEL Classification: O14, O33, L13, L16
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