Duopolistic competition under risk aversion and uncertainty

Michail Chronopoulos (), Bert De Reyck and Afzal Siddiqui

European Journal of Operational Research, 2014, vol. 236, issue 2, 643-656

Abstract: A monopolist typically defers entry into an industry as both price uncertainty and the level of risk aversion increase. By contrast, the presence of a rival typically hastens entry under risk neutrality. Here, we examine these two opposing effects in a duopoly setting. We demonstrate that the value of a firm and its entry decision behave differently with risk aversion and uncertainty depending on the type of competition. Interestingly, if the leader’s role is defined endogenously, then higher uncertainty makes her relatively better off, whereas with the roles exogenously defined, the impact of uncertainty is ambiguous.

Keywords: Investment analysis; Real options; Competition; Risk aversion (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:236:y:2014:i:2:p:643-656

DOI: 10.1016/j.ejor.2014.01.018

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