Abstract
Language | English |
---|---|
Pages | 209-224 |
Number of pages | 15 |
Journal | Review of Financial Economics |
Volume | 14 |
Issue number | 3-4 |
DOIs | |
Publication status | Published - 23 Jun 2005 |
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Keywords
- real options
- pre-emption
- stochastic processes
- competitive games
- rivalry
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Rivalry under price and quantity competition. / Pinto, Helena; Paxson, Dean.
In: Review of Financial Economics, Vol. 14, No. 3-4, 23.06.2005, p. 209-224.Research output: Contribution to journal › Article
TY - JOUR
T1 - Rivalry under price and quantity competition
AU - Pinto, Helena
AU - Paxson, Dean
PY - 2005/6/23
Y1 - 2005/6/23
N2 - We present a real option model for a duopoly setting where there are two stochastic factors and where the roles of the players are defined both exogenously and endogenously. The two stochastic factors are the number of units (market volume) and the profit per unit, which may have significantly different drifts and volatilities, and different correlations, depending on market structure and (dis)economies of scale. The paper shows that the degree of correlation between unit profits and market volume might result in different value functions and triggers, especially for followers and simultaneous investors in non-pre-emptive games. Monopoly-like volume is a critical determinant of the leader's trigger in both pre-emptive and non-pre-emptive games. First-mover advantages are significant in the definition of the leader's optimal entry moment, if the players are fighting for the leader's position (pre-emptive game).
AB - We present a real option model for a duopoly setting where there are two stochastic factors and where the roles of the players are defined both exogenously and endogenously. The two stochastic factors are the number of units (market volume) and the profit per unit, which may have significantly different drifts and volatilities, and different correlations, depending on market structure and (dis)economies of scale. The paper shows that the degree of correlation between unit profits and market volume might result in different value functions and triggers, especially for followers and simultaneous investors in non-pre-emptive games. Monopoly-like volume is a critical determinant of the leader's trigger in both pre-emptive and non-pre-emptive games. First-mover advantages are significant in the definition of the leader's optimal entry moment, if the players are fighting for the leader's position (pre-emptive game).
KW - real options
KW - pre-emption
KW - stochastic processes
KW - competitive games
KW - rivalry
UR - http://dx.doi.org/10.1016/j.rfe.2005.04.002
U2 - 10.1016/j.rfe.2005.04.002
DO - 10.1016/j.rfe.2005.04.002
M3 - Article
VL - 14
SP - 209
EP - 224
JO - Review of Financial Economics
T2 - Review of Financial Economics
JF - Review of Financial Economics
SN - 0893-9454
IS - 3-4
ER -