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Optimal Investment Decisions for Two Positioned Firms Competing in a Duopoly Market with Hidden Competitors
Author(s) -
Armada Manuel Rocha,
Kryzanowski Lawrence,
Pereira Paulo Jorge
Publication year - 2011
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2009.00514.x
Subject(s) - duopoly , competitor analysis , competition (biology) , microeconomics , investment (military) , value (mathematics) , industrial organization , position (finance) , economics , market share , investment strategy , business , cournot competition , marketing , computer science , finance , ecology , machine learning , politics , political science , law , biology , profit (economics)
This paper extends the literature dealing with the option to invest in a duopoly market for a leader‐follower setting. A restrictive assumption embodied in the models in the current literature is that investment opportunities are semi‐proprietary in that the two identified or positioned firms are guaranteed to hold at least the follower's position. More competition is realistically captured in our model by introducing the concept of hidden rivals so that the places in the market can be taken not only by positioned firm but also by these hidden competitors. The value functions and the optimal triggers for the positioned firms differ materially in settings with(out) the presence of hidden rivals. Unlike existing models, our model allows for (a)symmetric market shares and investment costs for the leader and the follower. Cooperative entrance by the two positioned firms is also modelled.