Real options bargaining games
AbstractThe 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.
|Journal series||Quantitative Finance and Economics, ISSN 2573-0134, (N/A 20 pkt)|
|Publication size in sheets||1|
|Keywords in Polish||opcja inwestycyjna; gry opcyjne; gra przetargowa; niesymetryczne rozwiązanie przetargowe Nasha; wartość kooperacyjno-konkurencyjna; coco wartość|
|Keywords in English||investment option; real options games; bargaining game; non-symmetric Nash bargaining solution; cooperative-competitive value; coco value|
|Score||= 20.0, 15-06-2020, ArticleFromJournal|
|Publication indicators||= 0|
|Citation count*||1 (2021-01-23)|
* presented citation count is obtained through Internet information analysis and it is close to the number calculated by the Publish or Perish system.