Investment decision rules in a competitive market and in the case of co-opetition. The real options games approach

Elżbieta Rychłowska-Musiał

Abstract

The main goal and the original role of this paper are to find and describe decision rules used by firms based on the net present value of an investment project and on the investment option value for different market conditions (competition or coopetition). The investment decision-making process is described as a game between two players; the real options approach is used to find the value of an investment project; thus, the paper falls in the category of real options games (ROG). An analysis of these games may help explain some of the aspects of a firm’s behaviour and offer some guidelines to managers. In a purely competitive environment, a firm will not delay execution of the project because of the risk of being outdistanced by competitors. In this case, firms will be interested in using the real option framework in their decision-making process only when the classic NPV is definitely negative, even if the real option theory recommends using it in some cases when NPV is positive. A co-opetition case offers much better prospects for the application of ROA. The introduction of cooperation arrangements among competitors reduces the area of conflict of interest between them. Firms that build a co-opetition relationship should be more interested in using the real options approach. Nevertheless, it should be emphasised that while the risk of the project is high, creation of a co-opetition relationship requires much more attention and consideration due to the threat of contract termination. Nonetheless, benefits that firms enjoy by following a coopetition agreement are more substantial only in the case of high-risk projects. An additional innovative contribution of the paper is taking into account the interactions between the model parameters. This is essential in performing a sensitivity analysis and it reflects the links observed in practical applications.
Author Elżbieta Rychłowska-Musiał (WIiGE / KMS)
Elżbieta Rychłowska-Musiał,,
- Department of Applied Mathematics
Journal seriesArgumenta Oeconomica, ISSN 1233-5835, (N/A 40 pkt)
Issue year2019
No2 (43)
Pages329-350
Publication size in sheets1.05
Keywords in Polishopcje realne, opcja inwestycyjna, konkurencja, koopetycja, gry opcyjne, teoria gier
Keywords in Englishreal options, investment option, competition, co-opetition, real options games, game theory
ASJC Classification1408 Strategy and Management; 2002 Economics and Econometrics
DOIDOI:10.15611/aoe.2019.2.14
URL https://www.dbc.wroc.pl/dlibra/publication/141948/edition/73323/content
Languageen angielski
Score (nominal)40
Score sourcejournalList
ScoreMinisterial score = 40.0, 15-06-2020, ArticleFromJournal
Publication indicators WoS Citations = 0; Scopus SNIP (Source Normalised Impact per Paper): 2018 = 0.191; WoS Impact Factor: 2017 = 0.178 (2) - 2017=0.222 (5)
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