Investment with network externality under uncertainty

Investment with network externality under uncertainty The purpose of this paper is to develop a real option model with a stochastic network size to simultaneously consider firm’s investment and household’s consumption behaviors in an equilibrium framework. First, the consumer’s waiting-to-buy effect is crucial in determining trigger network size of firm’s investment. Second, increasing network externality has an ambiguous effect on trigger network size of firm’s investment. Third, using NPV rule not only underestimates trigger network size but, also possibly results in the misleading relationship between network externality and trigger network size. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Investment with network externality under uncertainty

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Publisher
Springer US
Copyright
Copyright © 2010 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-010-0189-9
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to develop a real option model with a stochastic network size to simultaneously consider firm’s investment and household’s consumption behaviors in an equilibrium framework. First, the consumer’s waiting-to-buy effect is crucial in determining trigger network size of firm’s investment. Second, increasing network externality has an ambiguous effect on trigger network size of firm’s investment. Third, using NPV rule not only underestimates trigger network size but, also possibly results in the misleading relationship between network externality and trigger network size.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Jun 22, 2010

References

  • Managing information technology investments using a real-options approach
    Balasubramanian, P; Kulatilaka, N; Storck, J

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