Real options bargaining games

Elżbieta Rychłowska-Musiał

Abstract

The real options approach has been supporting investment decision-making processes for years. However, on competitive markets, the real options games approach is the more suitable way. In this article, a real options game subject to analysis is the situation in which two companies with different market share are exploring an opportunity to implement a new investment project. It is known that competition on the market reduces the scope of benefits a company can gain whilst implementing the project. In this paper, we show that this reduction can be mitigated by taking into account payoff transfer designated as a bargaining solution. We discuss three main types of games between companies that we can observe on the market; then we analyze their bargaining solutions, and finally—come up with recommendations to companies. A firm that dominates its respective market usually benefits by implementing the most advantageous strategy, but in certain situations it should pay special attention to its weaker competitor’s opportunities and try to anticipate its movements. In the paper, we show that with high project risk and significant asymmetry in the firms’ market share, a weaker company may still hold all the cards.
Author Elżbieta Rychłowska-Musiał (WIiGE / KMS)
Elżbieta Rychłowska-Musiał,,
- Department of Applied Mathematics
Journal seriesQuantitative Finance and Economics, ISSN 2573-0134, (N/A 20 pkt)
Issue year2019
Vol3
No4
Pages624-644
Publication size in sheets1
Keywords in Polishopcja inwestycyjna; gry opcyjne; gra przetargowa; niesymetryczne rozwiązanie przetargowe Nasha; wartość kooperacyjno-konkurencyjna; coco wartość
Keywords in Englishinvestment option; real options games; bargaining game; non-symmetric Nash bargaining solution; cooperative-competitive value; coco value
DOIDOI:10.3934/QFE.2019.4.624
URL https://www.aimspress.com/article/10.3934/QFE.2019.4.624
Languageen angielski
Score (nominal)20
Score sourcejournalList
ScoreMinisterial score = 20.0, 15-06-2020, ArticleFromJournal
Publication indicators WoS Citations = 0
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