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Jointly Held Investment Options and Vertical Relationships

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  • Dimitrios Zormpas

    (University of Brescia)

Abstract

We find the optimal time for exercising a jointly held investment option. When the input market is competitive, the investment can take place earlier, later, or exactly when the optimal investment threshold is reached depending on how the option holders interact and on the bargaining power distribution. When instead the input supplier has market power, the game-theoretic framework downstream is shown to be of secondary importance. The timing effect that is attributed to the vertical relationship is always prevailing, which dictates the inefficient postponement of the investment.

Suggested Citation

  • Dimitrios Zormpas, 2021. "Jointly Held Investment Options and Vertical Relationships," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(4), pages 513-530, June.
    • Handle: RePEc:kap:revind:v:58:y:2021:i:4:d:10.1007_s11151-020-09784-w
    DOI: 10.1007/s11151-020-09784-w
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    More about this item

    Keywords

    Investment analysis; Nash bargaining; Real options; Vertical relations;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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