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Preemptive competition between two firms with different discount rates

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  • Michi Nishihara

Abstract

I study a real options duopoly game between two firms with different discount rates. I derive the order of investments, investment thresholds, and firm values in equilibrium. With no cost disadvantage, the patient firm enters the market earlier and earns more than the impatient opponent. When the patient firm has a cost disadvantage, the order of market entry depends on the market characteristics. With a weaker first‐mover advantage, higher volatility, and lower growth rate, the impatient firm is more likely to be the first mover; however, the patient firm can earn more, even though it enters the market later.

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  • Michi Nishihara, 2021. "Preemptive competition between two firms with different discount rates," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 675-687, April.
    • Handle: RePEc:wly:mgtdec:v:42:y:2021:i:3:p:675-687
    DOI: 10.1002/mde.3264
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    Cited by:

    1. Michi Nishihara, 2022. "Corporate sustainability, investment, and capital structure," Discussion Papers in Economics and Business 22-05, Osaka University, Graduate School of Economics.

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