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Internet Portals as Portfolios of Entry Options

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Author Info

  • Enrico Perotti

    ()

  • Silvia Rossetto

    ()
    (University of Amsterdam)

Abstract

We investigate the valuation of platform investment, such as asoftware operating system or anInternet portal WebPage. Platform investment is the creation of aninnovative distribution andproduction infrastructure, which increases access to customers; as aresult it reduces entry costs inrelated products. Relative to conventional producers, firms builtaround platforms enjoy enhancedentry options in uncertain market segments, to be exercised at theoptimal strategic timing. Whenthe platform grants a strong strategic advantage, the innovator firmcan optimally choose the timingof entry when its strategic gain exceeds the value of the waitingoption; in case of weakeradvantage, the platform firm enters just before its competitor would.In a context of increaseduncertainty, the relative value of platform to traditional strategiesincreases; the value of waiting toinvest rises, but the value of platforms increases even more. In somecases, platform can reduceentry by making parallel monopoly sustainable.

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File URL: http://papers.tinbergen.nl/00105.pdf
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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 00-105/2.

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Date of creation: 05 Dec 2000
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Handle: RePEc:dgr:uvatin:20000105

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Web page: http://www.tinbergen.nl

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Cited by:
  1. Mehari Mekonnen Akalu, 2002. "Measuring and Ranking Value Drivers," Tinbergen Institute Discussion Papers 02-043/2, Tinbergen Institute.
  2. Grzegorz Pawlina & Peter M. Kort, 2006. "Real Options in an Asymmetric Duopoly: Who Benefits from Your Competitive Disadvantage?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 1-35, 03.
  3. Kort, P.M. & Pawlina, G., 2003. "Strategic capital budgeting: Asset replacement under uncertainty," Open Access publications from Tilburg University urn:nbn:nl:ui:12-123062, Tilburg University.

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