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Title:Leaders, Followers, and Risk Dynamics in Industry Equilibrium PDF Logo
Authors:Carlson, Murray
Dockner, Engelbert
Fisher, Adlai
Giammarino, Ron
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Dynamic Models of Investment D8-V2
Abstract:We study own and rival risk in a dynamic duopoly with a homogeneous output good. A competitor's options to adjust capacity reduce own-firm risk through a simple hedging channel. For example, if a rival possesses a growth option, an increase in industry demand directly enhances current profits but also encourages value-reducing competitor expansion. As a consequence, when a leader and a follower emerge in equilibrium, risk dynamics depart substantially from previously-studied simultaneous move benchmarks. Own-firm and competitor required returns tend to move together through contractions and oppositely during expansions, providing testable new empirical predictions.
Subjects:Growth options and industry risk
asset pricing and investment decisions
risk dynamics in oligopolistic industries
JEL:G31
D43
D92
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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