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Entry Patterns Over The Product Life Cycle

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  • ÓSCAR GUTIÉRREZ
  • FRANCISCO RUIZ-ALISEDA

Abstract

We study a game-theoretic real options model of new market entry based on empirical evidence of demand for a new product growing over time and eventually falling. Yet, firms do not know ex ante when this will occur, which creates incentives to update information by delaying irreversible entry. By assuming that the construction of a new productive plant takes some time and is unobservable in the meantime, while operation in the market is not, we show that entry rates increase or decrease under certain conditions related to the rate at which flow profits decrease as more firms enter the industry. Copyright © 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Ltd and The University of Manchester.

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  • Óscar Gutiérrez & Francisco Ruiz-Aliseda, 2009. "Entry Patterns Over The Product Life Cycle," Manchester School, University of Manchester, vol. 77(5), pages 594-610, September.
  • Handle: RePEc:bla:manchs:v:77:y:2009:i:5:p:594-610
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    1. Oscar Gutiérrez & Francisco Ruiz-Aliseda, 2011. "Real options with unknown-date events," Annals of Finance, Springer, vol. 7(2), pages 171-198, May.

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