Project Selection: Commitment and Competition

Posted: 19 Apr 2014 Last revised: 3 Nov 2016

See all articles by Vidya Atal

Vidya Atal

Montclair State University - Feliciano School of Business

Talia Bar

University of Connecticut - Department of Economics

Sidartha Gordon

Sciences Po, Department of Economics; University Paris-Dauphine

Abstract

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 > 2 firms.

Keywords: project selection, search, commitment, queueing, Markov perfect equilibrium

JEL Classification: L10, L13, D21

Suggested Citation

Atal, Vidya and Bar, Talia R. and Gordon, Sidartha, Project Selection: Commitment and Competition. Games and Economic Behavior, Vol. 96, 2016, Available at SSRN: https://ssrn.com/abstract=2426201 or http://dx.doi.org/10.2139/ssrn.2426201

Vidya Atal

Montclair State University - Feliciano School of Business ( email )

Department of Economics
1 Normal Avenue
Montclair, NJ 07043
United States
(973)655-7403 (Phone)

HOME PAGE: http://https://sites.google.com/site/vidyaatal/home

Talia R. Bar (Contact Author)

University of Connecticut - Department of Economics ( email )

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

Sidartha Gordon

Sciences Po, Department of Economics ( email )

28, rue des Saints peres
Paris, 75007
France

University Paris-Dauphine ( email )

Place du Marechal de Lattre Tassigny
Paris
France

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