Rivalry and uncertainty in complementary investments with dynamic market sharing

Alcino Azevedo () and Dean Paxson
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Alcino Azevedo: Aston Business School
Dean Paxson: Alliance Manchester Business School

Annals of Operations Research, 2018, vol. 271, issue 2, No 3, 319-355

Abstract: Abstract We study the effects of revenue and investment cost uncertainty, as well non-preemption duopoly competition, on the timing of investments in two complementary inputs, where either spillover-knowledge is allowed or proprietary-knowledge holds. We find that the ex-ante and ex-post revenue market shares play a very important role in firms’ behavior. When competition is considered, the leader’s behavior departs from that of the monopolist firm of Smith (Ind Corp Change 14:639–650, 2005). The leader is justified in following the conventional wisdom (i.e., synchronous investments are more likely), whereas, the follower’s behavior departs from that of the conventional wisdom (i.e., asynchronous investments are more likely).

Keywords: Complementary investments; Duopoly; Investment analysis; Non-preemption; Real option game; Uncertainty (search for similar items in EconPapers)
JEL-codes: C70 C72 C73 D81 D92 G31 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s10479-017-2752-4

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