Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/37484
Authors: 
Carlson, Murray
Dockner, Engelbert
Fisher, Adlai
Giammarino, Ron
Year of Publication: 
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

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