Asymmetric Suppliers’ Optimal Investment Timing Decisions
This paper extends Boyle and Guthrie (2003) to investigate the interdependent effects of asymmetric financing capacities and investment costs on investment timing decisions in a duopoly with a first-mover advantage. We demonstrate several novel findings. First, suffering a significant cost disadv...
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| Format: | Article |
| Language: | English |
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Ala-Too International University
2019-05-01
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| Series: | Eurasian Journal of Business and Economics |
| Subjects: | |
| Online Access: | http://www.ejbe.org/EJBE2019Vol12No23p097KUMAR.pdf |
| Summary: | This paper extends Boyle and Guthrie (2003) to investigate the interdependent
effects of asymmetric financing capacities and investment costs on investment
timing decisions in a duopoly with a first-mover advantage. We demonstrate
several novel findings. First, suffering a significant cost disadvantage, the supplier
with a larger financing capacity can still be the leader when the risk of future
funding shortfalls is relatively high. Second, a weaker supplier with a significant
lower financing capacity and a small cost disadvantage can even be the leader
under some degree of the risk of future funding shortfalls. In addition, the weaker
supplier that is still more liquidity constrained cannot be the leader anymore as its
financing capacity improves and closes to that of the rival. Third, only when the risk
of future funding shortfalls is relatively low, small asymmetry of investment costs
can make the rival’s preemption threat effective. Finally, higher project return
volatility can lead to a change of the supplier’s role from a follower to a leader
under some degree of the risk of future funding shortfalls, thereby lowering the
supplier’s optimal investment trigger |
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| ISSN: | 1694-5948 1694-5972 |