Strategic real options: Capacity optimization and demand structures

This book extends the theory of real options. Where previous contributions mainly consider the timing of investment, this book also determines the optimal capacity size. We develop and analyze several theoretical investment models of the firm. The first three studies consider firms that act in a strategic environment. More specifically, the first study considers a duopolistic setting where both firms have to decide about investment in a flexible or a dedicated production technology. The second and third study examine the sensitivity of the demand structure choice on the firm’s optimal timing and capacity choice. In the last study, a monopolistic firm is given the option to temporarily shut down production for unsatisfying demand. A time lag after the decision to restart production is incorporated, which reflects that it is not realistic for a restart to occur instantaneously.