Caveat preemptor: Coordination failure and success in a duopoly investment game

We build on Mason and Weeds’ (2010) model of duopoly investment under uncertainty by allowing high initial values of the profit shock as in Huisman and Kort (1999). Persistent first-mover advantage increases the likelihood of immediate simultaneous investment. In contrast with previous models where these have been interpreted as “mistakes”, such simultaneous investment outcomes can be optimal for the industry. Clustering of investments is thus both more likely, and more likely to be a desirable outcome.