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Ramsey Waits: A Theory of Non-Exclusive Real Options with First-Mover Advantages

  • Jacco Thijssen

This paper analyses the exercise decision of non-exclusive real options in a two-player setting. A general model of non-exclusive real options, allowing the underlying asset to follow any strong Markov process is developed, thus extending the existing literature, which is mainly based on one-dimensional geometric Brownian motion. For games with a first-mover advantage it is proved that an equilibrium with the rent-equalisation property exists. As an example, a duopoly where two firms can adopt a new technology, whose profitability follows a two-dimensional, correlated geometric Brownian motion is studied.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 07/17.

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Date of creation: Jun 2007
Date of revision:
Handle: RePEc:yor:yorken:07/17
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  1. Grenadier, Steven R, 1996. " The Strategic Exercise of Options: Development Cascades and Overbuilding in Real Estate Markets," Journal of Finance, American Finance Association, vol. 51(5), pages 1653-79, December.
  2. Leo K. Simon., 1987. "A Multistage Duel in Continuous Time," Economics Working Papers 8757, University of California at Berkeley.
  3. Leo K. Simon., 1987. "Basic Timing Games," Economics Working Papers 8745, University of California at Berkeley.
  4. Pauli Murto, 2004. "Exit in Duopoly Under Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 111-127, Spring.
  5. 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.
  6. Dutta Prajit K. & Rustichini Aldo, 1995. "(s, S) Equilibria in Stochastic Games," Journal of Economic Theory, Elsevier, vol. 67(1), pages 1-39, October.
  7. Simon, Leo K. & Stinchcombe, Maxwell B., 1987. "Extensive From Games in Continuous Time: Pure Strategies," Department of Economics, Working Paper Series qt03x115sh, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  8. Helen Weeds, 2002. "Strategic Delay in a Real Options Model of R&D Competition," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 729-747.
  9. Simon, Leo K., 1987. "Basic Timing Games," Department of Economics, Working Paper Series qt8kt5h29p, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  10. Simon, Leo K., 1987. "A Multistage Duel in Continuous Time," Department of Economics, Working Paper Series qt7186g3c4, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  11. repec:fth:tilbur:9992 is not listed on IDEAS
  12. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-57, April.
  13. Drew Fudenberg & Jean Tirole, 1985. "Preemption and Rent Equalization in the Adoption of New Technology," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 383-401.
  14. Jacco Thijssen & Kuno Huisman & Peter Kort, 2006. "The effects of information on strategic investment and welfare," Economic Theory, Springer, vol. 28(2), pages 399-424, 06.
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