ICT investments as Real Options under Competition Threat

摘要

In this paper, we estimate the value of an Information Communication Technology (ICT) investment opportunity, modeled as a Real Option (RO), when there is competition threat that can influence negatively its value or even more eliminate it. So far in the ICT literature, competition modeling is mainly focusing on duopoly market conditions, where investment actions taken by the firm may likely result in strategic answers by its competitors. However, after the ICT liberalization, the number of firms has been increased and the market structure tends to change from oligopoly to perfect competition. So, it is not practical to employ endogenous competition modeling. We consider exogenous competition modeling. We also relax literature assumptions by considering that the competitors' entry into the market causes competitive erosions during the waiting phase for the RO to invest and also during the operation phase, which follow stochastic processes in discrete time domain. We provide a ROs model, which estimates the value of a future investment opportunity when competitive entry can take part of the overall market value away from the firm that possesses this option. The results of our model prove that longer "wait-and-see" periods before exercising the ICT real option may indicate higher options values compared to the shorter ones, for some specific business conditions despite the competition threat for possible elimination of the future investment opportunity.