Abstract
The Thin Film Transistor-Liquid Crystal Display (TFT-LCD) industry has demonstrated that the investment of huge amounts of capital in new plants is a key factor for success. Decisions about investing in the latest generation of plant involve billions of dollars and a great deal of uncertainty. Moreover, the industry shows distinct oligopolistic characteristics, so the first mover's reactions must be considered when making capital decisions in such competitive environments. The traditional net present value (NPV) rule is a 'now-or-never' concept that fails to capture the need for managerial flexibility, which is especially important when investments are irreversible and involve a great deal of uncertainty. In this paper, we use a combination of real options and game theory to analyze the investment strategies of a case company in the TFT-LCD industry. The results show that real options reveal the value of flexibility, which NPV fails to consider. In addition, we apply game theory analysis to different investment strategies to demonstrate the decision-making processes used by competing companies.
| Original language | English |
|---|---|
| Pages (from-to) | 1241-1253 |
| Number of pages | 13 |
| Journal | Technological Forecasting and Social Change |
| Volume | 79 |
| Issue number | 7 |
| DOIs | |
| State | Published - 09 2012 |
| Externally published | Yes |
Keywords
- Game theory
- Investment analysis
- Real options
- Risk analysis