Jihye Jeon, Boston University

Learning and Investment under Demand Uncertainty in Container Shipping

Abstract:  This paper studies the impact of uncertainty about the demand process on investment and welfare in container shipping. In particular, I explore how such uncertainty interacts with demand fluctuations and firms' strategic incentives. I construct and estimate a dynamic oligopoly model in which agents do not know the true parameters in the demand process, but form and revise their beliefs based on information available at each decision-making moment. I find 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.