March 19, 2014, 3:00pm, Dr. Vidya Atal, Asst. Professor, Dept. Economics and Finance, MSU
We examine project adoption decisions of firms constrained in the number of projects they can handle at once. Adopting a project requires a commitment of uncertain duration, restricting the firm from adopting another project in subsequent periods. Such capacity constraints create a “fear of commitment”–some positive return projects are not adopted. In a sequential move dynamic game, the first mover strategically rejects some projects that are then adopted by the second mover, even when both firms are symmetric and equally informed. We study the effects of competition on the fear of commitment, and compare the jointly optimal adoption decision to the behavior of strategic non-cooperative firms.