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The timing of capacity expansion investments in oligopoly under demand uncertainty

The timing of capacity expansion investments in oligopoly under demand uncertainty

Arrieta Paredes, Mary-Paz (2007) The timing of capacity expansion investments in oligopoly under demand uncertainty. Investment Management and Financial Innovations, 4 (1). pp. 40-55. ISSN 1810-4967 (Print), 1812-9358 (Online)

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Abstract

Since a flexibility value emerges in waiting to expand capacity, the impact of demand uncertainty in an oligopolistic industry leads to capacity expansion timing. The creation of growth opportunities is then the outcome of expanding capacity at optimal times. However, in our model different capacity size competitors interact not affecting each others, because assessing the impact of demand uncertainty on capacity expansion projects takes them to set up independently their optimal capacity expansion timing schedules. In equilibrium no firm expands capacity more often than any other. Under demand uncertainty simultaneity in capacity expansions is the only possible Markov Perfect Equilibrium.

Item Type: Article
Uncontrolled Keywords: capacity expansion timing, oligopolies
Subjects: H Social Sciences > HF Commerce
Faculty / Department / Research Group: Faculty of Business > Department of International Business & Economics
Faculty of Business > Centre for Business Network Analysis
Related URLs:
Last Modified: 14 Oct 2016 09:24
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
URI: http://gala.gre.ac.uk/id/eprint/9676

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