The Effect of First-Mover's Advantages on the Strategic Exercise of Real Options

Chapter 11 in Real R&D Options, D. Paxson (ed.), Butterworth-Heinemann, Quantitative Finance series, 2003.

28 Pages Posted: 20 Jun 2002 Last revised: 11 Dec 2013

See all articles by Andrianos E. Tsekrekos

Andrianos E. Tsekrekos

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: November 1, 2001

Abstract

When real investment opportunities are open to competing firms in the same line of business, strategic considerations become extremely important in determining investment/entry policies. We develop an equilibrium framework for strategic (real) option exercise where the focus is on the effect of first-mover's advantages. The generality of our framework stems from the fact that we allow such advantages to be either temporary or permanent in nature. When the latter is true, economically identical competing firms might end up investing at very distinct times simply due to the effect of first-mover's advantages. When such advantages are substantial and temporary in nature, the rival entry times are drawn further apart as uncertainty increases.

Suggested Citation

Tsekrekos, Andrianos E., The Effect of First-Mover's Advantages on the Strategic Exercise of Real Options (November 1, 2001). Chapter 11 in Real R&D Options, D. Paxson (ed.), Butterworth-Heinemann, Quantitative Finance series, 2003., Available at SSRN: https://ssrn.com/abstract=314883

Andrianos E. Tsekrekos (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

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