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Internet Portals as Portfolios of Entry Options

Author

Listed:
  • Enrico Perotti
  • Silvia Rossetto

    (University of Amsterdam)

Abstract

We investigate the valuation of platform investment, such as asoftware operating system or anInternet portal WebPage. Platform investment is the creation of aninnovative distribution andproduction infrastructure, which increases access to customers; as aresult it reduces entry costs inrelated products. Relative to conventional producers, firms builtaround platforms enjoy enhancedentry options in uncertain market segments, to be exercised at theoptimal strategic timing. Whenthe platform grants a strong strategic advantage, the innovator firmcan optimally choose the timingof entry when its strategic gain exceeds the value of the waitingoption; in case of weakeradvantage, the platform firm enters just before its competitor would.In a context of increaseduncertainty, the relative value of platform to traditional strategiesincreases; the value of waiting toinvest rises, but the value of platforms increases even more. In somecases, platform can reduceentry by making parallel monopoly sustainable.

Suggested Citation

  • Enrico Perotti & Silvia Rossetto, 2000. "Internet Portals as Portfolios of Entry Options," Tinbergen Institute Discussion Papers 00-105/2, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20000105
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    Cited by:

    1. Pawlina, G. & Kort, P.M., 2001. "Strategic Capital Budgeting : Asset Replacement Under Uncertainty," Other publications TiSEM e79e30d8-bf35-4cde-ae02-f, Tilburg University, School of Economics and Management.
    2. Grzegorz Pawlina & Peter M. Kort, 2006. "Real Options in an Asymmetric Duopoly: Who Benefits from Your Competitive Disadvantage?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 1-35, March.
    3. Faninam, Farzan, 2024. "Essays on real options : Triopoly dynamics, disconnected investment regions, and multiple investment options," Other publications TiSEM cccc1cad-2899-4b57-9d83-f, Tilburg University, School of Economics and Management.
    4. Faninam, Farzan & Huisman, Kuno J．M. & Kort, Peter M., 2023. "Strategic investment under uncertainty in a triopoly market: Timing and capacity choice," European Journal of Operational Research, Elsevier, vol. 308(2), pages 897-911.
    5. Pawlina, G. & Kort, P.M., 2005. "The strategic value of flexible quality choice : a real options analysis," Other publications TiSEM 8658343c-8720-4469-8e5a-c, Tilburg University, School of Economics and Management.

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