TY - UNPB
T1 - Strategic Capacity Investment under Uncertainty with Volume Flexibility
AU - Wen, Xingang
PY - 2017/3/28
Y1 - 2017/3/28
N2 - This article considers investment decisions in an uncertain and competitive framework, with a first investor, the leader, always producing up to full capacity and a second investor, the follower, capable of adjusting output levels within the constraint of installed capacity. Both firms need to decide on the investment timing and the investment capacity levels. The main findings are as follows. Compared to a situation where the follower always produces up to full capacity, the leader has a larger incentive to accommodate a flexible follower. This is because the leader also benefits from the follower's volume flexibility. Due to the first mover advantage, the leader's value is higher than the follower's value, despite the follower's technological advantage in flexibility.
AB - This article considers investment decisions in an uncertain and competitive framework, with a first investor, the leader, always producing up to full capacity and a second investor, the follower, capable of adjusting output levels within the constraint of installed capacity. Both firms need to decide on the investment timing and the investment capacity levels. The main findings are as follows. Compared to a situation where the follower always produces up to full capacity, the leader has a larger incentive to accommodate a flexible follower. This is because the leader also benefits from the follower's volume flexibility. Due to the first mover advantage, the leader's value is higher than the follower's value, despite the follower's technological advantage in flexibility.
KW - Investment under Uncertainty
KW - volume flexibility
KW - entry deterrence/accommodation
KW - Capacity Choice
KW - Duopoly
M3 - Discussion paper
VL - 2017-019
T3 - CentER Discussion Paper
BT - Strategic Capacity Investment under Uncertainty with Volume Flexibility
PB - CentER, Center for Economic Research
CY - Tilburg
ER -