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Rivalry and uncertainty in complementary investments with dynamic market sharing

Author

Listed:
  • Alcino Azevedo

    (Aston Business School)

  • Dean Paxson

    (Alliance Manchester Business School)

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).

Suggested Citation

  • Alcino Azevedo & Dean Paxson, 2018. "Rivalry and uncertainty in complementary investments with dynamic market sharing," Annals of Operations Research, Springer, vol. 271(2), pages 319-355, December.
    • Handle: RePEc:spr:annopr:v:271:y:2018:i:2:d:10.1007_s10479-017-2752-4
    DOI: 10.1007/s10479-017-2752-4
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    More about this item

    Keywords

    Complementary investments; Duopoly; Investment analysis; Non-preemption; Real option game; Uncertainty;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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