Open Access
2014 Investment Timing and Capacity Choice under Uncertainty
Xiumei Lv, Shiqin Xu, Xiaoling Tang
Abstr. Appl. Anal. 2014(SI19): 1-9 (2014). DOI: 10.1155/2014/801862


This paper examines strategic investment between two firms that compete not only for investment timing but also for capacity under stochastic market demand. The value functions of real option for the follower, the dominant leader, and the preemptive leader are derived and their investment decisions are investigated. It finds that both firms will delay investment and the delayed margin of the follower will surpass that of the leader under greater uncertainty. Furthermore, both firms will provide more outputs in the face of increasing uncertainty and the growth rate of the follower’s capacity will exceed that of the leader’s. In addition, this paper finds that the follower will end up with a larger capacity than the leader.


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Xiumei Lv. Shiqin Xu. Xiaoling Tang. "Investment Timing and Capacity Choice under Uncertainty." Abstr. Appl. Anal. 2014 (SI19) 1 - 9, 2014.


Published: 2014
First available in Project Euclid: 2 October 2014

zbMATH: 07023101
MathSciNet: MR3191066
Digital Object Identifier: 10.1155/2014/801862

Rights: Copyright © 2014 Hindawi

Vol.2014 • No. SI19 • 2014
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