Irreversible Investment, Financial Constraints, and Asymmetric Competition Discussant: Yanzhi Wang Department of Finance National Taiwan University

Main findings This paper extends Boyle and Guthrie (2003) to investigate the interdependent effects of asymmetric financing constraints and investment costs on investment timing decisions in a duopoly with first-mover advantage. Three main findings are: First, with a large cost disadvantage the less-constrained firm can still be the leader when the risk of future funding shortfalls is relatively high. Second, a weaker firm that is significantly more constrained with a small cost disadvantage can even be the leader under some degree of the risk of future funding shortfalls. Finally, higher project value volatility can make the firm’s role change from a follower to a leader, thereby lowering the firm’s optimal investment trigger. This paper is interesting. Story and implication make sense to me!

Game structure Theoretical training was almost 10 years ago to me, my comments could be not to the point. This paper starts the structure from -1< qF < qL <0, meaning a quantitative competition in a duopoly. Before we set a leader-follower strcuture, will Cournot setting obtains this inequality: -1< qF < qL <0? Now we go back to the paper assumption, a leader-follower structure, which is something like a Stackelberg model. So I will use Stackelberg model for following discussions.

Game structure In traditional Stackelberg setting, leader and follower are by given. Yet now you generalize two players to have choice on being a leader or a follower. If firm i decides not to be a leader, then you means which of following cases? Firm i is a follower and firm j is a leader, or Firms i and j are under a Cournot equilibrium? If firm i will not be a leader, and firm j will be the leader, then will firm j be satisfied to be a leader? If it won’t be to a leader, then both firms will move back to a Cournot case.

Demand function setting What is your demand function? In a single firm, we can assume all decisions are price-given, so the demand function form does not matter at all in Boyle and Guthrie (2003). But in a duopoly setting, function form may change your results. It is plausible you set a linear function, will a constant elastic demand function (Q=a/P) change your result? Since you are using a numerical analysis, it should be fine to use a more generalized demand function.

Empirical implication What is investment here? In general financial constraint papers, they look at the capital expenditure of a firm. Yet, who will be a leader in a duopoly market? It must be the one that went public or was founded earlier.