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The Optimal Timing of the Introduction of New Products

  • Marzia Raybaudi

    ()

  • Martin Sola

    ()

  • Shasikanta Naindebam

This paper addresses the e�ects for partial equilibrium models of relaxing one of the critical underlying assumptions of the textbook approach (Dixit and Pyndick, 1994) to investment under uncertainty: either the potential investor has access to a single project or she can consider competing (or complementary) projects independently. This paper studies the investment decision of a multi-product monopolist where the projects exhibit interdepen- dence between the cash ‡ows of di�erent products. We derive the optimal entry time for each product and show that both the choice and timing of investment is di�erent from that suggested by the textbook approach. The decision to produce related goods simultaneously or sequentially crucially depends on their degree of substitutability or complementarity.

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File URL: http://www.utdt.edu/download.php?fname=_127904764682880300.pdf
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Paper provided by Universidad Torcuato Di Tella in its series Department of Economics Working Papers with number 2010-07.

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Length: 30 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:udt:wpecon:2010-07
Contact details of provider: Web page: http://www.utdt.edu/ver_contenido.php?id_contenido=439&id_item_menu=568

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  1. Lambrecht, Bart & Perraudin, William, 2003. "Real options and preemption under incomplete information," Journal of Economic Dynamics and Control, Elsevier, vol. 27(4), pages 619-643, February.
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