Rivalry and uncertainty in complementary investments with dynamic market sharing

Alcino Azevedo, Dean Paxson

Research output: Contribution to journalArticle

Abstract

We study the effects of revenue and investment cost uncertainty, as well non- preemption duopoly competition, on the timing of investments in two complementary inputs, where either spillover-knowledge is allowed or proprietary-knowledge holds. We find that the ex-ante and ex-post revenue market shares play a very important role in firms’ behavior. When competition is considered, the leader’s behavior departs from that of the monopolist firm of Smith (Ind Corp Change 14:639–650, 2005). The leader is justified in following the conventional wisdom (i.e., synchronous investments are more likely), whereas, the follower’s behavior departs from that of the conventional wisdom (i.e., asynchronous investments are more likely).
Original languageEnglish
JournalAnnals of Operations Research
Early online date12 Jan 2018
DOIs
Publication statusPublished - 12 Jan 2018

Bibliographical note

© The Author(s) 2018. This article is an open access publication. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.

Funding: Fundação Para a Ciência e a Tecnologia.

Keywords

  • Complementary investments· Duopoly · Investment analysis· Non-preemption · Real option game · Uncertainty

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