Project selection: Commitment and competition

Vidya Atal, Talia Bar, Sidartha Gordon

Research output: Contribution to journalArticle

3 Scopus citations

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.

Original languageEnglish
Pages (from-to)30-48
Number of pages19
JournalGames and Economic Behavior
Volume96
DOIs
StatePublished - 1 Mar 2016

Keywords

  • Commitment
  • Markov perfect equilibrium
  • Project selection
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