Strategic Investment in Networks
نویسندگان
چکیده
We examine how the presence of network effects influences investment decisions. Building a network requires significant upfront investment but benefits carry tremendous uncertainty. This creates an incentive to defer the commitment of irreversible investments. However, such investments may also create the opportunity to convince the consumers about the network’s size, establish a network standard, and preempt future competitors. Our models account for the tradeoff between these countervailing forces to obtain the investment rules for building networks. First, we study the investment decision faced by a monopolist in both the investment opportunity and product market. By investing prior to the resolution of uncertainty, the monopolist convinces the consumers of the network size. We solve for the threshold level of expected demand which must be exceeded in order to commit the investment. This threshold is lowered by an increase in the intensity of the network effect but the effect of uncertainty on the investment threshold is ambiguous. Our second model allows for future competitor entry where the entrant may either adopt the monopolist’s standard or build its own network. We find that the optimal licensing fee may be lower than the highest level that the entrant would accept. When future competition is anticipated, the investment threshold is monotonically decreasing in both the intensity of network effects and the level of uncertainty. * We would like to thank John Henderson, George Wyner, Chi-Hyon Lee, Kathleen Curley and other participants at the IS seminar series at Boston University for their insightful comments. Funding was provided by the Boston University Institute for Leading in a Dynamic Economy. All errors and omissions are ours.
منابع مشابه
The Effect of Real Exchange Rate Volatility on Strategic Investment in Iran
This study examines the impacts of real exchange rate fluctuations on the companies' strategic investments in Iran. The data of 92 listed companies in Tehran Stock Exchange during the period of 2002-2015areused. First, the volatility of exchange rate is estimated by the Generalized Autoregressive Conditional Heteroskedasticity (GARCH). The model is estimated by GMM and system GMM methods. The r...
متن کاملStrategic Foresight by Scenario Method, for Attracting Foreign Investment in Iran by 2041
The attraction of foreign investment is one of the economic priorities in developing countries, including Iran. But increasing uncertainty in this field has led policy making toward new approaches such as strategic foresight. The main purpose of this study is to develop scenarios to attract foreign investment in Iran. The research method is scenario planning and in order to identify the "key dr...
متن کاملDesign of a Reliable Facility Location Model for Health Service Networks
This paper proposes a novel facility location model for health service network design by considering different key elements including the reliability aspects, service capacity, congestion, service quality, surrounding public infrastructures, geographical accessibility and several types of cost such as investment, transportation and operational costs. We formulate the problem as a robust scenari...
متن کاملThe Effect Of Salvage Market On Strategic Technology Choice And Capacity Investment Decision Of Firm Under Demand Uncertainty
متن کامل
Strategic Management of the Investment Process in the Agricultural Sector (for Example, Agricultural Enterprises and the Food Industry)
The article presents the results of a study of the nature and characteristics of investment processes in the agricultural sector (by the example of agriculture and food industry in Ukraine), as well as recommendations on the modernization of the mechanisms for strategic management of these processes. It is noted that the restoration and development of Ukraine is possible on the basis of the eff...
متن کامل