@techreport{NBERw5971, title = "A Markup Interpretation of
Optimal Rules for Irreversible Investment", author = "Avinash
Dixit and Robert S. Pindyck and Sigbjorn Sodal", institution =
"National Bureau of Economic Research", type = "Working Paper",
series = "Working Paper Series", number = "5971", year = "1997",
month = "March", URL = "http://www.nber.org/papers/w5971",
abstract = {We re-examine the basic investment problem of
deciding when to incur a sunk cost to obtain a stochastically
fluctuating benefit. The optimal investment rule satisfies a
trade-off between a larger versus a later net benefit; we show
that this trade-off is closely analogous to the standard trade-
off for the pricing decision of a firm that faces a downward
sloping demand curve. We reinterpret the optimal investment rule
as a markup formula involving an elasticity that has exactly the
same form as the formula for a firm's optimal markup of price
over marginal cost. This is illustrated with several examples.},
}