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To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jet.2010.10.002 Byline: Jacco J.J. Thijssen Keywords: Timing games; Preemption; Rent equalization Abstract: In this paper a two-player real option game with a first-mover advantage is analyzed, where payoffs are driven by a player-specific stochastic state variable. It is shown that there exists an equilibrium which has qualitatively different properties from those in standard real option games driven by common stochastic shocks. The properties of the equilibrium are four-fold: (i) preemption does not necessarily occur, (ii) if preemption takes place, the rent-equalization property holds, (iii) for almost all sample paths it is clear ex-ante which player invests first, and (iv) it is possible that both players invest simultaneously, even if that is not optimal. It is argued from simulations that real option games with a common one-dimensional shock do not provide a good approximation for games with player-specific uncertainty, even if these are highly correlated. Author Affiliation: Department of Economics & Related Studies, University of York, Heslington, York YO10 5DD, UK Article History: Received 10 March 2009; Revised 30 July 2010; Accepted 31 July 2010 Article Note: (footnote) [star] The author thanks Peter Spencer, Magdalena Trojanowska, and seminar participants at Tilburg University, Trinity College Dublin, the University of York and the SaA[macron]d Business School, University of Oxford for their constructive comments. Comments from an anonymous referee and the Editor (Christian Hellwig) are greatly appreciated.