Abstract
This note presents a contingent-claims approach to strategic capacity planning. We develop models for capacity choice and expansion decisions in a single firm environment where investment is irreversible and demand is uncertain. These models illustrate specifically the relevance of path-dependent options analysis to planning capacity investments when the firm adopts demand tracking or average capacity strategies. It is argued that Asian/average type real options can explain hysteresis phenomena in addition to providing superior control of assets in place.
Original language | English |
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Pages (from-to) | 319–323 |
Number of pages | 5 |
Journal | European Journal of Operational Research |
Volume | 201 |
Issue number | 1 |
DOIs | |
Publication status | Published - 16 Feb 2010 |
Keywords
- Capacity decisions; Real options; Path-dependent contingent-claims