Investment Decisions in a New Mixed Market

Kazuhiro Ohnishi

The analysis in Fudenberg and Tirole (1983) discusses the perfect equilibria of a continuous-time model of the strategic investment decisions of two profit maximizing private firms in a new market and suggests that there are perfect equilibria where each firm does not invest to its steady-state reaction curve. This paper examines the perfect equilibria of a continuous-time model of the strategic investment decisions of a social-welfare-maximizing public firm and a profit-maximizing private firm in a new market and shows that there are no perfect equilibria where each firm does not invest to its steady-state reaction curve in the mixed model.