Strategic investment in innovation: Capacity and timing decisions under uncertainty

This dissertation comprises of two parts. The first part focusses on the optimal investment problem of incumbent firms when they are offered the option to start the production of a new product that yields an innovation compared to the established product. We start with the incumbent-entrant problem in Chapter 2. Chapter 3 looks at incumbent firms that have the option to expand their current production lines by offering a new generation of the existing product. In Chapter 4, we look at the situation where incumbent firms can choose their optimal moment to replace their current technology for a new, better, technology. The second part of this dissertation looks at the optimal investment timing in a setting with a birth-death process.