@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.},
}