Abstract
This paper examines strategic investment between two firms that compete not only for investment timing but also for capacity under stochastic market demand. The value functions of real option for the follower, the dominant leader, and the preemptive leader are derived and their investment decisions are investigated. It finds that both firms will delay investment and the delayed margin of the follower will surpass that of the leader under greater uncertainty. Furthermore, both firms will provide more outputs in the face of increasing uncertainty and the growth rate of the follower’s capacity will exceed that of the leader’s. In addition, this paper finds that the follower will end up with a larger capacity than the leader.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
