Publication
Title
How to escape a declining market : capacity investment or exit?
Author
Abstract
This paper considers a firm that faces a declining profit stream for its established product. The firm has the option to invest in a new technology with which it can produce an innovative product while having the option to exit at any point in time. In the presence of an exit option, earlier work determined the optimal timing to invest, where it was shown that higher uncertainty might accelerate investment timing. In the present paper the firm also decides on capacity. This extension leads to monotonicity, i.e. higher uncertainty delays investment timing. We also find that higher potential profitability of the innovative product market increases the incentive to invest earlier, where, however, we get the counterintuitive result that the firm invests in smaller capacity. Finally, if quantity has a smaller negative effect on price, the firm wants to acquire a larger capacity at a lower investment threshold. (C) 2016 Elsevier B.V. All rights reserved.
Language
English
Source (journal)
European journal of operational research. - Amsterdam
Publication
Amsterdam : 2016
ISSN
0377-2217
Volume/pages
254:1(2016), p. 40-50
ISI
000376817100005
Full text (Publishers DOI)
Full text (publishers version - intranet only)
UAntwerpen
Faculty/Department
Research group
Publication type
Subject
Affiliation
Publications with a UAntwerp address
External links
Web of Science
Record
Identification
Creation 05.07.2016
Last edited 08.05.2017
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