This paper analyzes the effect of revenue and investment subsidies on strategic in- vestment and optimal investment timing within an asymmetric duopoly, whereby two heterogeneous firms have different maximum capacities, marginal costs, and invest- ment costs. Within this market, a firm optimally decides whether to be a leader or a follower and the optimal quantity to produce. In addition, firms can be active or idle after investment. An interesting finding from our analysis is that the subsidies accelerate investment when a market has an incumbent firm and the other firm has the option to invest. When both firms have the option to invest, we observe differ- ent equilibria and investment triggers’ slopes as the revenue and investment subsidies change.

This work was supported by national funds through FCT, Funda ̧ca ̃o para a Ciˆencia e a Tec- nologia, under projects UIDB/50021/2020, UID/ECO/03182/2020, and UIDB/00315/2020. In addition, this work was supported by FCT under the HOTSPOT project with refer

Investment Analysis,Real Options,Option Game,Government Subsidies.