TIME-TO-BUILD INVESTMENT AND UNCERTAINTY IN OLIGOPOLY

Abstract: This paper examines how time to build alters strategic investment behaviour under oligopoly. Facing demand uncertainty, firms decide whether to invest early or wait until uncertainty has been resolved. A game that captures time-to-build investment is contrasted with another one in which investment is quick in place. We show that a time lag between when and how much to invest reduces the incentive to delay. When investment requires time to complete, early investment occurs more to avoid becoming a follower than to become a strategic investment leader. The opposite is true with quick-in-place investment. A brief welfare analysis is provided