Entry in the Presence of Dueling Options

Timothy B. Folta and Jonathon P. O Brien

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: This paper investigates the influence of industry uncertainty on the decision by established firms to enter a new industry. Specifically, we examine the tension between the option to defer, which discourages entry in the presence of uncertainty, and the option to grow, which may encourage entry in the presence of uncertainty when there are early mover advantages. Empirical analysis on data from a broad array of industries revealed that the effect of uncertainty is not monotonic, and that inflection points are influenced by factors that should theoretically influence the value of the option to defer.

Keywords: uncertainty; growth option; real option; entry; early mover advantages (search for similar items in EconPapers)
Pages: 54 pages
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:pur:prukra:1155

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