Ramsey Waits: A Theory of Non-Exclusive Real Options with First-Mover Advantages

Jacco Thijssen

Discussion Papers from Department of Economics, University of York

Abstract: This paper analyses the exercise decision of non-exclusive real options in a two-player setting. A general model of non-exclusive real options, allowing the underlying asset to follow any strong Markov process is developed, thus extending the existing literature, which is mainly based on one-dimensional geometric Brownian motion. For games with a first-mover advantage it is proved that an equilibrium with the rent-equalisation property exists. As an example, a duopoly where two firms can adopt a new technology, whose profitability follows a two-dimensional, correlated geometric Brownian motion is studied.

Keywords: Timing games; real options; rent equalisation; technology adoption (search for similar items in EconPapers)
JEL-codes: C73 D81 O32 (search for similar items in EconPapers)
Date: 2007-06
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:yor:yorken:07/17

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