Entry deterrence by timing rather than overinvestment in a strategic real options framework

Nick Fijbo Dick Huberts, Herbert Dawid, Kuno J.M. Huisman, Peter Kort

Research output: Contribution to journalArticlepeer-review


This paper examines a dynamic incumbent-entrant framework with stochastic evolution of the (inverse) demand, in which both the optimal timing of the investments and the capacity choices are explicitly considered. We find that the incumbent invests earlier than the entrant and that entry deterrence is achieved through timing rather than through overinvestment. This is because the incumbent invests earlier and in a smaller amount compared to a scenario without potential entry. If, on the other hand, the size of the investment is exogenously given, the investment order changes and the entrant invests before the incumbent does.
Original languageEnglish
Pages (from-to)165-185
Number of pages21
JournalEuropean Journal of Operational Research
Issue number1
Early online date7 Sept 2018
Publication statusPublished - 1 Apr 2019

Bibliographical note

© 2018 Published by Elsevier B.V. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy.


  • Game Theory
  • Incumbent/Entrant
  • Capacity choice
  • Investment under Uncertainty
  • Real Option Games
  • Real-option games
  • Investment under uncertainty
  • Game theory

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