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Evaluation of firm’s loss due to incomplete information in real investment decision

Authors
Journal
European Journal of Operational Research
0377-2217
Publisher
Elsevier
Publication Date
Volume
188
Issue
2
Identifiers
DOI: 10.1016/j.ejor.2007.03.046
Keywords
  • Applied Probability
  • Investment Analysis
  • Real Options
  • Incomplete Information
  • Leader–Follower Game

Abstract

Abstract We investigate the effect of incomplete information in a model where a start-up with a unique idea and technology pioneers a new market but will eventually be expelled from the market by a large firm’s subsequent entry. We evaluate the start-up’s loss due to incomplete information about the large firm’s behavior. We clarify conditions under which the start-up needs more information about the large firm. The proposed method of evaluating the loss due to incomplete information could also be applied to other real options models involving incomplete information.

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