Complementary Investments in Non-preemption Duopoly Markets under Input Cost and Revenue Uncertainty

We study the combined effects of uncertainty and competition on the timing optimization of investments in complementarity inputs for non-preemption duopoly (leader-follower) markets with either a weakpatent system where spillover-knowledge is allowed or a strong-patent system where proprietaryknowledge holds. We find that, for some input-sequencing investment scenarios, ex-ante and (expected) ex-post market shares play an important role on firms’ behaviour, and when uncertainty about the inputs cost and revenue are considered together with competition, the conventional wisdom which says that “when a production process requires two extremely complementary inputs firms should upgrade (or replace) them simultaneously”, does not necessarily hold particularly for the follower. Some of the illustrated results show nonlinear and complex investment criteria for both firms. JEL Classification: D81, D92, O33.