Price Taker

Ricardo G Barcelona and Franz Heukamp

Chapter 9 in Dynamic Decisions:Energy PIVOT, Adaptive Moves, Winning BOUnCE, 2022, pp 469-510 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Operating under competitive markets, classical theory suggests that each firm has limited influence on prices, given that their volumes are too small to move markets. In this context, each firm’s investments are similarly price-neutral. For this reason, managers rely on quantitative analytics espoused by capital budgeting to inform their choices. However, instead of sailing through with ease, the decision process is nuanced, if not contorted. An alternative approach is to employ the BOUnCE framework, which serves as a way to integrate human biases and preferences into managerial decision-making. It validates and continually reframes investment approaches by simulating feasible futures. In understanding why and how energy markets transition, actions are adapted to respond to shifting strategic intents, potentially altering the firm’s financial prospects.

Keywords: Energy; Energy Investments; Option Games; Real Options; Climate Finance; Sustainable Investment; Dynamic Decisions; Decision Uncertainties; Renewable Energy; Fossil Fuel; Carbon Tax; Energy Transition; Behavioural Economics; Political Economy; Financial Economics; Strategy and Competition (search for similar items in EconPapers)
JEL-codes: C58 G3 G30 O13 P48 Q43 Q5 (search for similar items in EconPapers)
Date: 2022
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