We study a model where capacity installation by an incumbent firm serves to deter others from entering the industry. We argue that uncertainty about demand or costs forces the incumbent to choose a higher capacity level than it would under certainty. This higher level diminishes the...

This paper introduces a continuous-time real options game to study firms' incentives in capacity preemption. Unlike previous literature usually predicting that the endogenous Stackelberg leader is better off by building a larger capacity than its follower, this paper shows that under fairly...

This paper calls into question the fuel neutrality of capacity mechanisms implemented in liberalized electricity markets. The argument relies on two assumptions likely satisfied in practice, first that investors are risk averse and second that markets in risk are incomplete. For the analysis, we...