IDEAS home Printed from https://ideas.repec.org/a/pal/jorsoc/v67y2016i2p229-239.html
   My bibliography  Save this article

Entry and exit of service providers under cost uncertainty: a real options approach

Author

Listed:
  • Wenbo Shi

    (Revenue Management & Analytics, The Walt Disney Company, Orlando, USA)

Abstract

From a real options perspective, this paper examines a service provider's entry and exit decisions toward two types of service outsourcing contracts under service transaction cost uncertainties. Specifically, for a service contract with a flexible duration, the service provider has an option to terminate the contract at any time point by paying a pre-determined exit penalty. For a contract with a fixed-duration, the service provider is obligated to deliver services for a pre-determined period of time. Under this framework, this study seeks to derive the transaction cost conditions that trigger the service provider’s exercise of entry and exit options. Furthermore, via analytical and numerical examinations, this study also uncovers how service transaction cost uncertainty and other business factors (eg, exit penalty and contract duration) influence the service provider’s entry and exit decisions as well as the choice of contract type (ie, fixed-duration versus flexible-duration).

Suggested Citation

  • Wenbo Shi, 2016. "Entry and exit of service providers under cost uncertainty: a real options approach," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(2), pages 229-239, February.
    • Handle: RePEc:pal:jorsoc:v:67:y:2016:i:2:p:229-239
    as

    Download full text from publisher

    File URL: http://www.palgrave-journals.com/jors/journal/v67/n2/pdf/jors20155a.pdf
    File Function: Link to full text PDF
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: http://www.palgrave-journals.com/jors/journal/v67/n2/full/jors20155a.html
    File Function: Link to full text HTML
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gutiérrez, Óscar, 2020. "On the definition of the investment-uncertainty relationship," Journal of Economics and Business, Elsevier, vol. 112(C).
    2. Nunes, Cláudia & Pimentel, Rita, 2017. "Analytical solution for an investment problem under uncertainties with shocks," European Journal of Operational Research, Elsevier, vol. 259(3), pages 1054-1063.
    3. Gao, Yongling & Driouchi, Tarik, 2018. "Accounting for ambiguity and trust in partial outsourcing: A behavioral real options perspective," Journal of Business Research, Elsevier, vol. 92(C), pages 93-104.
    4. Awasthy, Prakash & Hazra, Jishnu, 2020. "Collaboration under outcome-based contracts for information technology services," European Journal of Operational Research, Elsevier, vol. 286(1), pages 350-359.
    5. Mahadevan, B. & Hazra, Jishnu & Jain, Tarun, 2017. "Services outsourcing under asymmetric cost information," European Journal of Operational Research, Elsevier, vol. 257(2), pages 456-467.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:jorsoc:v:67:y:2016:i:2:p:229-239. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.