Learning and investment under demand uncertainty in container shipping.
This article investigates the role of demand uncertainty in explaining cyclical investment fluctuations in the container shipping industry. I develop and estimate a dynamic oligopoly model with learning in which firms choose investment and scrapping. In this model, firms are uncertain about the true...
| Published in: | RAND Journal of Economics (Wiley-Blackwell) Vol. 53; no. 1; pp. 226 - 260 |
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| Format: | Article |
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Wiley-Blackwell
Mar2022
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| Online Access: | View this record in EBSCOhost |
| Summary: | This article investigates the role of demand uncertainty in explaining cyclical investment fluctuations in the container shipping industry. I develop and estimate a dynamic oligopoly model with learning in which firms choose investment and scrapping. In this model, firms are uncertain about the true parameters in the underlying process for demand, and form and revise their beliefs using available information. Counterfactual analysis reveals that uncertainty about the demand process amplifies investment cycles through (i) leading firms to revise beliefs more drastically as they experience demand fluctuations, and (ii) intensifying strategic incentives among firms. |
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