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Strategic real options : Capacity optimization and demand structures

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  • Boonman, H.J.

    (Tilburg University, School of Economics and Management)

Abstract

This book extends the theory of real options. Where previous contributions mainly consider the timing of investment, this book also determines the optimal capacity size. We develop and analyze several theoretical investment models of the firm. The first three studies consider firms that act in a strategic environment. More specifically, the first study considers a duopolistic setting where both firms have to decide about investment in a flexible or a dedicated production technology. The second and third study examine the sensitivity of the demand structure choice on the firm’s optimal timing and capacity choice. In the last study, a monopolistic firm is given the option to temporarily shut down production for unsatisfying demand. A time lag after the decision to restart production is incorporated, which reflects that it is not realistic for a restart to occur instantaneously.

Suggested Citation

  • Boonman, H.J., 2014. "Strategic real options : Capacity optimization and demand structures," Other publications TiSEM 2c1d43fb-e8d5-4f50-9bbf-f, Tilburg University, School of Economics and Management.
  • Handle: RePEc:tiu:tiutis:2c1d43fb-e8d5-4f50-9bbf-f2aeb8aa4249
    Note: Dissertation
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    File URL: https://pure.uvt.nl/ws/portalfiles/portal/4594186/ThesisHettieBoonmanVersion27October2014.pdf
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    References listed on IDEAS

    as
    1. Thijssen, Jacco J.J. & Huisman, Kuno J.M. & Kort, Peter M., 2012. "Symmetric equilibrium strategies in game theoretic real option models," Journal of Mathematical Economics, Elsevier, vol. 48(4), pages 219-225.
    2. Glen L. Urban & Theresa Carter & Steven Gaskin & Zofia Mucha, 1986. "Market Share Rewards to Pioneering Brands: An Empirical Analysis and Strategic Implications," Management Science, INFORMS, vol. 32(6), pages 645-659, June.
    3. Tsekrekos, Andrianos E., 2010. "The effect of mean reversion on entry and exit decisions under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 725-742, April.
    4. Yang, L. & Ng, C.T. & Cheng, T.C.E., 2011. "Optimal production strategy under demand fluctuations: Technology versus capacity," European Journal of Operational Research, Elsevier, vol. 214(2), pages 393-402, October.
    5. Jan A. Van Mieghem & Maqbool Dada, 1999. "Price Versus Production Postponement: Capacity and Competition," Management Science, INFORMS, vol. 45(12), pages 1639-1649, December.
    6. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716.
    7. Tseng, Mei-Chiun, 2004. "Strategic choice of flexible manufacturing technologies," International Journal of Production Economics, Elsevier, vol. 91(3), pages 223-227, October.
    8. Roller, Lars-Hendrik & Tombak, Mihkel M, 1990. "Strategic Choice of Flexible Production Technologies and Welfare Implications," Journal of Industrial Economics, Wiley Blackwell, vol. 38(4), pages 417-431, June.
    9. Grzegorz Pawlina & Peter M. Kort, 2006. "Real Options in an Asymmetric Duopoly: Who Benefits from Your Competitive Disadvantage?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 1-35, March.
    10. Han T. J. Smit & L. A. Ankum, 1993. "A Real Options and Game-Theoretic Approach to," Financial Management, Financial Management Association, vol. 22(3), Fall.
    11. Jan A. Van Mieghem, 1998. "Investment Strategies for Flexible Resources," Management Science, INFORMS, vol. 44(8), pages 1071-1078, August.
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    Cited by:

    1. Wen, Xingang & Hagspiel, V. & Kort, Peter, 2017. "Subsidized Capacity Investment under Uncertainty," Discussion Paper 2017-043, Tilburg University, Center for Economic Research.

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