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Real options in an asymmetric duopoly: who benefits from your competitive disadvantage?

Research output: Contribution to Journal/Magazine › Journal article › peer-review

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Real options in an asymmetric duopoly: who benefits from your competitive disadvantage? / Pawlina, G; Kort, Peter M.
In: Journal of Economics and Management Strategy, Vol. 15, No. 1, 03.2006, p. 1-35.

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Harvard

Pawlina, G & Kort, PM 2006, 'Real options in an asymmetric duopoly: who benefits from your competitive disadvantage?', Journal of Economics and Management Strategy, vol. 15, no. 1, pp. 1-35. https://doi.org/10.1111/j.1530-9134.2006.00090.x

APA

Pawlina, G., & Kort, P. M. (2006). Real options in an asymmetric duopoly: who benefits from your competitive disadvantage? Journal of Economics and Management Strategy, 15(1), 1-35. https://doi.org/10.1111/j.1530-9134.2006.00090.x

Vancouver

Pawlina G, Kort PM. Real options in an asymmetric duopoly: who benefits from your competitive disadvantage? Journal of Economics and Management Strategy. 2006 Mar;15(1):1-35. doi: 10.1111/j.1530-9134.2006.00090.x

Author

Pawlina, G ; Kort, Peter M. / Real options in an asymmetric duopoly: who benefits from your competitive disadvantage?. In: Journal of Economics and Management Strategy. 2006 ; Vol. 15, No. 1. pp. 1-35.

Bibtex

@article{c9949aca610743c7886982969f6d8661,
title = "Real options in an asymmetric duopoly: who benefits from your competitive disadvantage?",
abstract = "This paper analyzes the impact of investment cost asymmetry on the optimal real option exercise strategies and the value of firms in duopoly. Both firms have an opportunity to invest in a project enhancing (ceteris paribus) the profit flow. We show that three types of equilibrium strategies exist. Furthermore, we express the critical levels of cost asymmetry delineating the equilibrium regions as functions of basic economic variables. The presence of strategic interactions among the firms leads to counterintuitive results. First, for a certain range of the asymmetry level, a marginal increase in the investment cost of the firm with the cost disadvantage can enhance this firm's own value. Moreover, such a cost increase can reduce the value of the competitor. Finally, we discuss the welfare implications of the optimal exercise strategies and show that the presence of identical firms can result in a socially less desirable outcome than if one of the competitors has a significant cost (dis)advantage.",
author = "G Pawlina and Kort, {Peter M}",
note = "The definitive version is available at www3.interscience.wiley.com",
year = "2006",
month = mar,
doi = "10.1111/j.1530-9134.2006.00090.x",
language = "English",
volume = "15",
pages = "1--35",
journal = "Journal of Economics and Management Strategy",
issn = "1058-6407",
publisher = "Wiley-Blackwell",
number = "1",

}

RIS

TY - JOUR

T1 - Real options in an asymmetric duopoly: who benefits from your competitive disadvantage?

AU - Pawlina, G

AU - Kort, Peter M

N1 - The definitive version is available at www3.interscience.wiley.com

PY - 2006/3

Y1 - 2006/3

N2 - This paper analyzes the impact of investment cost asymmetry on the optimal real option exercise strategies and the value of firms in duopoly. Both firms have an opportunity to invest in a project enhancing (ceteris paribus) the profit flow. We show that three types of equilibrium strategies exist. Furthermore, we express the critical levels of cost asymmetry delineating the equilibrium regions as functions of basic economic variables. The presence of strategic interactions among the firms leads to counterintuitive results. First, for a certain range of the asymmetry level, a marginal increase in the investment cost of the firm with the cost disadvantage can enhance this firm's own value. Moreover, such a cost increase can reduce the value of the competitor. Finally, we discuss the welfare implications of the optimal exercise strategies and show that the presence of identical firms can result in a socially less desirable outcome than if one of the competitors has a significant cost (dis)advantage.

AB - This paper analyzes the impact of investment cost asymmetry on the optimal real option exercise strategies and the value of firms in duopoly. Both firms have an opportunity to invest in a project enhancing (ceteris paribus) the profit flow. We show that three types of equilibrium strategies exist. Furthermore, we express the critical levels of cost asymmetry delineating the equilibrium regions as functions of basic economic variables. The presence of strategic interactions among the firms leads to counterintuitive results. First, for a certain range of the asymmetry level, a marginal increase in the investment cost of the firm with the cost disadvantage can enhance this firm's own value. Moreover, such a cost increase can reduce the value of the competitor. Finally, we discuss the welfare implications of the optimal exercise strategies and show that the presence of identical firms can result in a socially less desirable outcome than if one of the competitors has a significant cost (dis)advantage.

U2 - 10.1111/j.1530-9134.2006.00090.x

DO - 10.1111/j.1530-9134.2006.00090.x

M3 - Journal article

VL - 15

SP - 1

EP - 35

JO - Journal of Economics and Management Strategy

JF - Journal of Economics and Management Strategy

SN - 1058-6407

IS - 1

ER -