IDEAS home Printed from
   My bibliography  Save this paper

Investment in Electronic Commerce - A Real Options Approach


  • Bergendahl, Göran

    (Department of Business Administration, School of Economics and Commercial Law, Göteborg University)


In recent years substantial investments have been made in eCommerce projects. Some of them seem to have been profitable. In other cases there has not yet been enough demand to generate a cash flow large enough to guarantee a financial viability of the projects. The purpose of this project is to develop a set of methods to be used in order to evaluate investments in eCommerce given an uncertain demand. eCommerce investments are sequential in the meaning that initial “platform” expenditures for web services are to be followed by substantial outlays for marketing. In this paper a real options approach is used for their evaluation. Sales and sales income will be described in terms of a binomial process with declining growth rates. A decision to stop the investments in marketing is assumed to put a cap on that growth. The paper shows that the real options approach is a suitable procedure to evaluate sequential decisions concerning investments in eCommerce. The method is applied on a real case study from a Swedish firm. It is demonstrated that the classical approach of adjusting the discount rate for risk may give quite misleading results.

Suggested Citation

  • Bergendahl, Göran, 2003. "Investment in Electronic Commerce - A Real Options Approach," FE rapport 2003-402, University of Gothenburg, Department of Business Administration.
  • Handle: RePEc:hhb:gunwba:2003_402

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Henrekson, Magnus, 2001. "Institutionella förutsättningar för entreprenörskap och företagstillväxt," SSE/EFI Working Paper Series in Economics and Finance 421, Stockholm School of Economics.
    Full references (including those not matched with items on IDEAS)

    More about this item


    eCommerce; sequential investments; flexibility; declining growth rate; real options; case study;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhb:gunwba:2003_402. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maria Persson). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.