IDEAS home Printed from
   My bibliography  Save this paper

Effects of Strategic Interactions on the Option Value of Waiting


  • Huisman, K.J.M.

    (Tilburg University, Center For Economic Research)

  • Kort, P.M.

    (Tilburg University, Center For Economic Research)


This paper considers an investment timing problem in a duopoly framework. The results of the seminal contribution by Fudenberg en Tirole (1985, RES) are extended by introduction of uncertainty. Three scenarios are identified. In the first scenario we have a preemption equilibrium with dispersed investment timing, while in the second scenario an equilibrium with joint investment prevails. In the third scenario preemption holds in case uncertainty is low, and joint investment is the Pareto dominating equilibrium if uncertainty is large. From the theory of real options it is known that it is optimal to invest when the net present value exceeds the option value of waiting. In this paper we modify the real options investment rule by taking into account strategic interactions. Now the net present value must be compared with the so-called strategic option value of waiting. It can be shown that, compared to the option value of waiting in the monopoly case, the strategic option value of waiting is the same in the joint investment case and lower in the preemption equilibrium. In the latter case it can even occur that investing is optimal, while the net present value is negative.

Suggested Citation

  • Huisman, K.J.M. & Kort, P.M., 1999. "Effects of Strategic Interactions on the Option Value of Waiting," Discussion Paper 1999-92, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:a867e9f4-7840-4335-83df-e06181688055

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item


    Investment; timing game; real options;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets


    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:tiu:tiucen:a867e9f4-7840-4335-83df-e06181688055. 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: (Richard Broekman). 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.