Real Options Games Between Two Competitors: The Case of Price War

Elżbieta Rychłowska-Musiał

Abstract

This paper takes the subject of optimal investment strategies for firms acting on a competitive market. An investment decision-making process is described as a game between two players, and the real options approach is used to find a value of an investment project, therefore the paper falls in the area of the real options games. Based on games solutions we formulate recommendations for competitors. It comes as no surprise that the advantage is primarily on the side of a dominant company, but under certain circumstances, a weaker party has a very strong bargaining chip. To mitigate possible effects of price war, firms may cooperate and their negotiations could be supported by a payoff transfer computed as the coco value. It also turned out that the possible cooperation between competitors gains significance when a project risk is high, as well as when the price war is cut-throat.
Author Elżbieta Rychłowska-Musiał (WIiGE / KMS)
Elżbieta Rychłowska-Musiał,,
- Department of Applied Mathematics
Journal seriesInternational Journal of Computational Economics and Econometrics, ISSN 1757-1170, e-ISSN 1757-1189, (N/A 20 pkt)
Issue year2020
Vol10
No1
Pages92-110
Publication size in sheets0.9
Keywords in Polishopcje realne, opcja inwestycyjna, gry opcyjne, konkurencja, wojna cenowa, gra przetargowa, coco wartość
Keywords in Englishreal options, investment option, real options games, competition, price wars, bargaining game, cooperative-competitive value, coco value
DOIDOI:10.1504/IJCEE.2020.104177
URL https://www.inderscienceonline.com/doi/pdf/10.1504/IJCEE.2020.104177
Languageen angielski
Score (nominal)20
Score sourcejournalList
ScoreMinisterial score = 20.0, 15-06-2020, ArticleFromJournal
Publication indicators WoS Citations = 0
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