In this paper, we develop a bi-level real options framework for deriving the equilibrium Government subsidisation and firm-level capacity investment policy in a duopoly market structure. We find that strategic interactions with the Government may impact a firm’s capacity investment decision significantly and that the equilibrium subsidisation policy depends on both the market structure and the type of duopolistic competition. Interestingly, the provision of greater subsidy to the leader raises the follower’s incentive to invest earlier and in a bigger project. The loss in value of the leader, due to the follower’s entry, relative to the monopolist increases with economic uncertainty and, although a subsidy can mitigate this loss, its effect becomes less pronounced as economic uncertainty increases. We also find that a profit (welfare)-maximising Government does not offer (offers) a subsidy in a highly uncertain environment or upon low tax rate, while higher tax rate does not always decelerate investment. Finally, we find that while competition is always desirable for a social planner, a profit-maximising Government may benefit more under pre-emptive competition.

中文翻译：

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竞争和不确定性下补贴与产能投资双层优化

在本文中，我们开发了一个双层实物期权框架，用于推导双寡头市场结构中政府补贴和企业层面产能投资政策的均衡。我们发现，与政府的战略互动可能会显着影响企业的产能投资决策，并且均衡补贴政策取决于市场结构和双头垄断竞争的类型。有趣的是，向领导者提供更多补贴会提高追随者更早投资更大项目的动力。由于追随者的进入，领导者相对于垄断者的价值损失随着经济不确定性的增加而增加，尽管补贴可以减轻这种损失，但随着经济不确定性的增加，其影响变得不那么明显。我们还发现，利润（福利）最大化的政府不会在高度不确定的环境或低税率下提供补贴，而较高的税率并不总是会减缓投资。最后，我们发现，虽然社会规划者总是希望竞争，但追求利润最大化的政府在先发制人的竞争下可能会受益更多。