Optimal Investment Decisions for Two Positioned Firms Competing in a Duopoly Market with Hidden Competitors

• Type: Article in International Scientific Journal
• Date: 2011

Authors

Armada, Manuel R (Author) Other; Lawrence Kryzanowski (Author) FEP; Paulo Jorge Pereira (Author) Other

Journal

Title: European Financial Management

Vol. 17 No. 2

Pages: 305-330

ISSN: 1354-7798

Publisher: Wiley-Blackwell

Indexing

ISI Web of Knowledge - 11 Citations

ISI Web of Science

Scopus - 15 Citations

Scientific classification

FOS: Social sciences > Economics and Business

Other information

Authenticus ID: P-002-TY5

DOI: 10.1111/j.1468-036x.2009.00514.x

Abstract (EN): This paper extends the literature dealing with the option to invest in a duopoly market for a leader-follower setting. A restrictive assumption embodied in the models in the current literature is that investment opportunities are semi-proprietary in that the two identified or positioned firms are guaranteed to hold at least the follower's position. More competition is realistically captured in our model by introducing the concept of hidden rivals so that the places in the market can be taken not only by positioned firm but also by these hidden competitors. The value functions and the optimal triggers for the positioned firms differ materially in settings with(out) the presence of hidden rivals. Unlike existing models, our model allows for (a)symmetric market shares and investment costs for the leader and the follower. Cooperative entrance by the two positioned firms is also modelled.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 26