Competitive Strategy: Options and Games

Corporate managers who face both strategic uncertainty and market uncertainty confront a classic trade-off between commitment and flexibility. They can stake a claim by making a large capital investment today, influencing their rivals behavior or they can take a wait and see approach to avoid adverse market consequences tomorrow. In this book the authors describe an emerging paradigm that can quantify and balance commitment and flexibility, option games, by which the decision-making approaches of real options and game theory can be combined. The authors first discuss prerequisite concepts and tools from basic game theory, industrial organization and real options analysis and then present the new approach in discrete time and later in continuous time. Their presentation of continuous-time option games is the first systematic coverage of the topic and fills a significant gap in the existing literature. Competitive Strategy provides a rigorous yet pragmatic and intuitive approach to strategy formulation. It synthesizes research in the areas of strategy, economics and finance in a way that is accessible to readers not necessarily expert in the various fields involved. Competitive Strategy provides a masterful treatment of the use of options and game theory in the analysis of fundamental strategy problems such as capacity expansion, pre-emption, first vs. late mover positioning, etc. Flexibility and commitment are essential characteristics of any competitive strategy and Trigeorgis and Chevalier-Roignant give us a most insightful and practical set of models and tools. This is a must read book for any strategy scholar and decision maker. Karel Cool, Professor of Strategic Management and BP Chaired Professor of European Competitiveness, INSEAD, France Competitive Strategy provides a powerful synthesis of modern finance and corporate strategy. Today we can anticipate innovation in strategic advice and its implementation. Who better to prepare us for it than Lenos Trigeorgis, with his experiences as serious academic researcher, skilled consultant and seasoned teacher and Benot Chevalier-Roignant with the fresh, innovative mind of a young scholar? Their carefully developed exposition exemplifies the power of real options and games to clarify and quantify the strategic decision-making of the firm. The authors skillfully transform the art of strategy into strategic science. Robert C. Merton, Nobel Laureate in Economic Sciences This book unifies two major strands of economic theoryreal options and gamesinto a single, coherent framework and then shows how these ideas can be applied to the formulation of corporate strategy in a rigorous fashion. With deep knowledge, Trigeorgis and Chevalier-Roignant take the art of strategy to new heights of analytic sophistication. Carliss Baldwin, William L. White Professor of Business Administration, Harvard UniversityTable of Contents:Glossary. Symbols. Foreword by Avinash Dixit. Preface. 1. The Strategy Challenge. I. Strategy, Games and Optios2. Strategic Management and Competitive Advantage. 3. Market Structure Games: Static Approaches. 4. Market Structure Games: Dynamic Approaches. 5. Uncertainty, Flexibility and Real Options. II Option Games: Discrete-Time Analysis6. An Integrative Approach to Strategy: Option Games. 7. Option to Invest. 8. Innovation Investment in Two-Stage Games. III. Option Games: Continuous - Time Models9. Monopoly: Investment and Expansion Options. 10. Oligopoly: Simultaneous Investment. 11. Leadership and Early-Mover Advantage. 12. Preemption versus Collaboration in a Duopoly. 13. Extensions and Other Applications. Appendix: Basics of Stochastic Processes. References. Index.