As becomes apparent from the standard text books in industrial organization (cf. Tirole, 1988, The Theory of Industrial Organization), the analysis of the effects of uncertainty within this field is yet underdeveloped. This paper shows that the new theory of strategic real options can be used to...

In this paper the impact of policy change on the investment behavior of the firm is studied. The change occurs when a stochastic process describing the state of the economic environment reaches a certain trigger. In our setting both the firm's conjecture concerning the trigger as well as the...

This paper considers a representative firm taking investment decisions in a high-tech environment where different generations of products are invented over time. First, we develop a real options investment model in which, according to standard practice, the sales price and the unit production...

We analyze the optimal investment strategy of a firm that can complete a project either in one stage at a single freely chosen time point or in incremental steps at distinct time points. The presence of economies of scale gives rise to the following trade-off: lumpy investment has a lower total...

This paper revisits the important result of the real options approach to investment under uncertainty, which states that increased uncertainty raises the value of waiting and thus decelerates investment. Typically in this literature projects are assumed to be perpetual. However, in today's...

In this paper, the impact of product market uncertainty on the optimal replacement timing of a production facility is studied. The existing production facility can be replaced by a technologically more advanced and thus more cost-effective one. Strategic interactions among the firms competing in...

This paper considers the problem of how to price a conspicuous product when the economy is in a recession that disrupts capital markets. A conspicuous product in this context is a luxury good for which demand is increasing in brand image. Brand image here means the ability of a consumer to...

Abstract: This paper considers a firm that has the option to undertake product innovations. For each product innovation the firm has to install a new production plant. We find that investments are larger and occur in a later stadium when more of the old capital stock needs to be scrapped....