Investment Strategy and Growth in a New Market

TLDR

Investment and growth in firms are limited by physical and financial constraints, with early entrants able to preemptively invest, a situation analogous to the Stackelberg equilibrium in oligopoly theory. The study examines how firms in a growing market strategically decide on preemptive investments and how these decisions shape the market’s long‑run structure. The authors model optimal preemptive investment levels to analyze their effects on the market’s long‑run structure.

Abstract

This paper studies the strategic interaction among firms in a growing market. It focuses upon the investment decisions of the firms. Central to the analysis is the idea that investment and growth for the firm are constrained by physical and financial factors. Firms that enter early and/or firms that can grow rapidly can make preemptive investments. The paper studies the optimal levels of preemptive investment and the implications for the long-run structure of the market. The analysis of optimal preemption is similar in spirit to the von Stackelberg equilibrium concept in oligopoly theory.