An Option Games Model Analysis on Investment Decisions of the Adoption of New Technology
In dynamic uncertain environments, the investment timing of the firm about adopting the existing new technology is influenced by the rivals actions and technological progress. This paper exploits option games approach to examine the impact of operating costs and technological innovations on firms strategic irreversible investment decisions. In the model, the irreversible investment in adoption of the existing new technology is in strategic competitive circumstances and facing the arrival of a further new technology after the competition setting is established, which the further new technology can reduce operating costs. The study shows that the rapid technological innovation encourages the followers investment and discourages the leaders investment, when the operating cost reduction is greater enough and the investment cost is lower enough of the further new technology. However, the case is the opposite when the operating cost reduction isnt greater enough and the investment cost isnt lower enough of the further new technology. The higher operating cost and the larger investment cost of the existing new technology, the lower cost reduction and the larger investment cost of the further new technology, the greater volatility of the market demand, and the greater first-mover advantage delay the followers investment, instead, hasten the leaders investment Comparing with the optimal timing without the adoption of the further new technology, the firm delays its investment when no firm has invested; however, once one firm has invested first, the firm will hasten to invest, when the operating cost reduction is greater enough and the investment cost is lower enough of the further new technology.
Option games real options technology adoption
Xianghua Liu
Xinhua School of Finance and Insurance, Zhongnan University of Economics and Law, Wuhan, 430073, China
国际会议
第八届武汉电子商务国际会议(The Eighth Wuhan International Conference on E-Business)
武汉
英文
830-837
2009-05-30（万方平台首次上网日期，不代表论文的发表时间）