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Real Options Games Between Asymmetric Firms on a Competitive Market

In: Advances in Panel Data Analysis in Applied Economic Research

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  • Elżbieta Rychłowska-Musiał

    (Poznań University of Economics and Business)

Abstract

The main goal and the original contribution of this paper are to find and describe optimal investment strategies for asymmetric firms acting on a competitive market. Investment decision-making process is described as a game between two players, and the real options approach is used to find a value of an investment project; therefore, the paper falls in the area of the real options games (ROG). We also study the effect of a project risk level (measured by volatility) on a firm’s investment strategy and examine a case of symmetric firms as well. It is no surprise that the advantage is mostly on the side of a dominant company, but under some circumstances, a weaker party has a very strong bargaining chip. Firms may cooperate, and their negotiations could be supported by a payoff transfer computed as the coco value. It also turned out that the cooperation between competitors gains in significance when a project risk is high regardless of whether firms are asymmetric or symmetric.

Suggested Citation

  • Elżbieta Rychłowska-Musiał, 2018. "Real Options Games Between Asymmetric Firms on a Competitive Market," Springer Proceedings in Business and Economics, in: Nicholas Tsounis & Aspasia Vlachvei (ed.), Advances in Panel Data Analysis in Applied Economic Research, chapter 0, pages 299-310, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-70055-7_23
    DOI: 10.1007/978-3-319-70055-7_23
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