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Options in technology investment games: The real world TFT-LCD industry case

Author

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  • Wu, Liang-Chuan
  • Li, Shu-Hsing
  • Ong, Chorng-Shyong
  • Pan, Chungteh

Abstract

The Thin Film Transistor-Liquid Crystal Display (TFT-LCD) industry has demonstrated that the investment of huge amounts of capital in new plants is a key factor for success. Decisions about investing in the latest generation of plant involve billions of dollars and a great deal of uncertainty. Moreover, the industry shows distinct oligopolistic characteristics, so the first mover's reactions must be considered when making capital decisions in such competitive environments. The traditional net present value (NPV) rule is a ‘now-or-never’ concept that fails to capture the need for managerial flexibility, which is especially important when investments are irreversible and involve a great deal of uncertainty. In this paper, we use a combination of real options and game theory to analyze the investment strategies of a case company in the TFT-LCD industry. The results show that real options reveal the value of flexibility, which NPV fails to consider. In addition, we apply game theory analysis to different investment strategies to demonstrate the decision-making processes used by competing companies.

Suggested Citation

  • Wu, Liang-Chuan & Li, Shu-Hsing & Ong, Chorng-Shyong & Pan, Chungteh, 2012. "Options in technology investment games: The real world TFT-LCD industry case," Technological Forecasting and Social Change, Elsevier, vol. 79(7), pages 1241-1253.
    • Handle: RePEc:eee:tefoso:v:79:y:2012:i:7:p:1241-1253
    DOI: 10.1016/j.techfore.2012.03.008
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    Citations

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    Cited by:

    1. Wang, I. Kim & Seidle, Russell, 2017. "The degree of technological innovation: A demand heterogeneity perspective," Technological Forecasting and Social Change, Elsevier, vol. 125(C), pages 166-177.
    2. Arasteh, Abdollah, 2017. "Considering the investment decisions with real options games approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 1282-1294.
    3. Ali, Irfan, 2016. "The impact of ERP implementation on the financial performance of the firm : An empirical study," Other publications TiSEM 876506f5-1aed-4421-aa2c-0, Tilburg University, School of Economics and Management.
    4. Cl'audia Nunes & Rita Pimentel, 2015. "Analytical solution to an investment problem under uncertainties with shocks," Papers 1509.04135, arXiv.org, revised Sep 2015.
    5. Zhao, Rui & Zhou, Xiao & Han, Jiaojie & Liu, Chengliang, 2016. "For the sustainable performance of the carbon reduction labeling policies under an evolutionary game simulation," Technological Forecasting and Social Change, Elsevier, vol. 112(C), pages 262-274.
    6. Wang, I. Kim & Qian, Lihong & Lehrer, Mark, 2017. "From technology race to technology marathon: A behavioral explanation of technology advancement," European Management Journal, Elsevier, vol. 35(2), pages 187-197.

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