This paper takes an electric vehicle (EV) market as a typical example of new business sectors that are expected to contribute greatly to transition toward the low carbon society. The model demonstrates that such a new sector often takes off to growth only hand in hand with the development of other related business fields such as electricity charging infrastructure in case of EVs. The model facilitates the assessment of various policy strategies from the perspectives of setting the society on to the path toward lowing carbon emissions.
When a company invests in a R&D project and tries to acquire patents under uncertainty, it is important for the company to have many real options to respond flexibly. However, when the other company entered into the same R&D project early with preemption, the company might not earn enough profit. Under such competition, it is critical to determine the timing in starting the investment. This paper analyzes the optimal investment strategy for two asymmetric firms in getting a patent in the presence of uncertainty and competition. Based on trade-off between a small and a big companies' success rates of getting a patent and initial investment costs, we consider a competitive situation where two asymmetric firms might face. The numerical result shows that a small company can be competitive with a big company by reducing its initial investment cost and that this model can describe a small company's market positionings in the real world.
We derive a new expression of investment criterion for real option models and give a new interpretation for the investment criterion. Given the required rate of return on investment r and the irreversible investment cost K, the investment criterion for deterministic cash flow X(t) is the marginal investment cost rK. For X(t) follows geometric Brownian Motion (GBM), we derive a new expression of the investment criterion has a form of marginal investment cost rK times a modification coefficient. This expression of the investment criterion is comparable to the criterion for deterministic cash flow. Thus our work leads to realizing the meaning of investment criterion for real option models more clearly. Moreover, we show the investment criterion for GBM with mixed exponential jumps can also be expressed by marginal investment cost rK times a modification coefficient that is more complex than the GBM's. Furthermore, this form of investment criterion eases the comparative statics analysis. Finally, we discuss the case of investment cost by also following GBM, and derive an expression of the investment criterion which is comparable to the deterministic case.
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