Abstract
This paper is aimed at giving new insights on the strategic investment problem as formulated by Spence (1979) and Fudenberg & Tirole (1983) [F-T hereafter]. These authors analyse the investment intertemporal strategies simultaneously used by a firm established in a market and by a new entrant when investment is assumed to be irreversible and when there is no capital depreciation through time. The strategic investment level of the established firm is then defined as the minimum initial capital stock which prevents the new entrant to get nonnegative profits in the future. The strategic investment depends on the strategies used in the post-entry game. The analysis of the post-entry game will be made in terms of Differential Games. Two dynamic equilibrium concepts will be discussed: the perfect Nash equilibrium (closed loop) and the Stackelberg equilibrium. Technicalities as well as comparisons with F-T results are given in Thépot (1989). Section 1 is devoted to the definition of the Differential Game; the Nash and the Stackelberg strategies are respectively analyzed in Section 2 and 3.KeywordsNash EquilibriumCapital StockDifferential GameSwitching PointEquilibrium PathThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
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