We study the distinct impacts of own and rival actions on risk and return when firms strategically compete in the product market. Contrary to simple intuition, a competitor's options to adjust capacity reduce own-firm risk. For example, if a rival possesses a growth option, an increase in...

We examine a model in which two firms strategically compete in a duopolistic product market. Firms produce a homogenous product and face stochastic industry demand. Each firm has a single option either to expand or contract capacity, and hence output. In this setup we analyze the risk...

In this paper, we consider a dynamic game model of two identical countries. Policy-makers of both countries have quadratic intertemporal objective functions and want to stabilize domestic output, domestic inflation, and the real rate of exchange. We present different analytical and numerical...

The search for deterministic chaos in economic and financial time series has attracted much interest over the past decade. Evidence of chaotic structures is usually blurred, however, by large random components in the time series. In the first part of this paper, a sophisticated algorithm for...

Many economic problems can be formulated as dynamic games in which strategically interacting agents choose actions that determine the current and future levels of a single capital stock. We study necessary as well as sufficient conditions that allow us to characterise Markov perfect Nash...