Investment Timing and Capacity Choice under Uncertainty
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...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Wiley
2014-01-01
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| Series: | Abstract and Applied Analysis |
| Online Access: | http://dx.doi.org/10.1155/2014/801862 |
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| _version_ | 1832553472929562624 |
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| author | Xiumei Lv Shiqin Xu Xiaoling Tang |
| author_facet | Xiumei Lv Shiqin Xu Xiaoling Tang |
| author_sort | Xiumei Lv |
| collection | DOAJ |
| description | 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. |
| format | Article |
| id | doaj-art-7224ca1304474ad5bca4d60d6a135350 |
| institution | Kabale University |
| issn | 1085-3375 1687-0409 |
| language | English |
| publishDate | 2014-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Abstract and Applied Analysis |
| spelling | doaj-art-7224ca1304474ad5bca4d60d6a1353502025-02-03T05:53:58ZengWileyAbstract and Applied Analysis1085-33751687-04092014-01-01201410.1155/2014/801862801862Investment Timing and Capacity Choice under UncertaintyXiumei Lv0Shiqin Xu1Xiaoling Tang2School of Finance, Chongqing Technology and Business University, Chongqing 400067, ChinaSchool of Finance, Chongqing Technology and Business University, Chongqing 400067, ChinaSchool of Finance, Chongqing Technology and Business University, Chongqing 400067, ChinaThis 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.http://dx.doi.org/10.1155/2014/801862 |
| spellingShingle | Xiumei Lv Shiqin Xu Xiaoling Tang Investment Timing and Capacity Choice under Uncertainty Abstract and Applied Analysis |
| title | Investment Timing and Capacity Choice under Uncertainty |
| title_full | Investment Timing and Capacity Choice under Uncertainty |
| title_fullStr | Investment Timing and Capacity Choice under Uncertainty |
| title_full_unstemmed | Investment Timing and Capacity Choice under Uncertainty |
| title_short | Investment Timing and Capacity Choice under Uncertainty |
| title_sort | investment timing and capacity choice under uncertainty |
| url | http://dx.doi.org/10.1155/2014/801862 |
| work_keys_str_mv | AT xiumeilv investmenttimingandcapacitychoiceunderuncertainty AT shiqinxu investmenttimingandcapacitychoiceunderuncertainty AT xiaolingtang investmenttimingandcapacitychoiceunderuncertainty |