Martin J. Nielsen

"Competition and irreversible investments"
JEL codes: C73, G13
Keywords: Irreversible investments, strategic investments, real options, preemption

Abstract: Incumbent monopolists frequently claim that the introduction of competition will reduce future profits and therefore delay future investments. In this paper we show, that not only is this not generally true, but in the oligopolistic industry model of Dixit & Pindyck (1994) it is never the case. We extend this result to situations in which investments have positive externalities and situations in which the monopolist has multiple investment opportunities.