Investment and Market Dominance

Posted: 29 May 2001

See all articles by Susan Athey

Susan Athey

Stanford Graduate School of Business

Armin Schmutzler

University of Zurich - Department of Economics; Centre for Economic Policy Research (CEPR)

Abstract

We analyze a model of oligopolistic competition with ongoing investment. Special cases include incremental investment, patent races, learning by doing, and network externalities. We investigate circumstances under which a firm with low costs or high quality will extend its initial lead through investments. To this end, we derive a new comparative statics result for general games with strategic substitutes, which yields the desired conditions for our investment game. Finally, we highlight plausible countervailing effects that arise when investments of leaders are less effective than those of laggards, or in dynamic games when firms are sufficiently patient.

Suggested Citation

Carleton Athey, Susan and Schmutzler, Armin, Investment and Market Dominance. Rand Journal of Economics, Vol. 32, No. 1. Available at SSRN: https://ssrn.com/abstract=252295

Susan Carleton Athey (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Armin Schmutzler

University of Zurich - Department of Economics ( email )

Z├╝rich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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