Priority Option: The Value of Being a Leader in Complete and Incomplete Markets

We consider the strategic interaction between two firms competing for the opportunity to invest in a project with uncertain future values. Starting in complete markets, we provide a rigorous characterization of the strategies followed by each firm in continuous time in the context of a timing/coordination game. In particular, the roles of leader and follower emerge from the resulting symmetric, Markov, sub-game perfect equilibrium. Comparing …