The Optimal Timing of the Introduction of New Products
AbstractThis paper addresses the e�ects for partial equilibrium models of relaxing one of the critical underlying assumptions of the textbook approach (Dixit and Pyndick, 1994) to investment under uncertainty: either the potential investor has access to a single project or she can consider competing (or complementary) projects independently. This paper studies the investment decision of a multi-product monopolist where the projects exhibit interdepen- dence between the cash ‡ows of di�erent products. We derive the optimal entry time for each product and show that both the choice and timing of investment is di�erent from that suggested by the textbook approach. The decision to produce related goods simultaneously or sequentially crucially depends on their degree of substitutability or complementarity.
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Bibliographic InfoPaper provided by Universidad Torcuato Di Tella in its series Department of Economics Working Papers with number 2010-07.
Length: 30 pages
Date of creation: Jul 2010
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Web page: http://www.utdt.edu/ver_contenido.php?id_contenido=439&id_item_menu=568
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Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-24 (All new papers)
- NEP-COM-2010-07-24 (Industrial Competition)
- NEP-INO-2010-07-24 (Innovation)
- NEP-PPM-2010-07-24 (Project, Program & Portfolio Management)
- NEP-TID-2010-07-24 (Technology & Industrial Dynamics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lambrecht, Bart & Perraudin, William, 2003. "Real options and preemption under incomplete information," Journal of Economic Dynamics and Control, Elsevier, vol. 27(4), pages 619-643, February.
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