Abstract
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 language | English |
|---|---|
| Pages (from-to) | 165-185 |
| Number of pages | 21 |
| Journal | European Journal of Operational Research |
| Volume | 274 |
| Issue number | 1 |
| Early online date | 7 Sept 2018 |
| DOIs | |
| Publication status | Published - 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.Keywords
- Game Theory
- Incumbent/Entrant
- Capacity choice
- Investment under Uncertainty
- Real Option Games
- Real-option games
- Investment under uncertainty
- Game theory
