Evaluation of firm’s loss due to incomplete information in real investment decision |
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Authors: | Michi Nishihara Masao Fukushima |
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Institution: | 1. Center for the Study of Finance and Insurance, Osaka University, Osaka 560-8531, Japan;2. Department of Applied Mathematics and Physics, Graduate School of Informatics, Kyoto University, Kyoto 606-8175, Japan |
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Abstract: | We investigate the effect of incomplete information in a model where a start-up with a unique idea and technology pioneers a new market but will eventually be expelled from the market by a large firm’s subsequent entry. We evaluate the start-up’s loss due to incomplete information about the large firm’s behavior. We clarify conditions under which the start-up needs more information about the large firm. The proposed method of evaluating the loss due to incomplete information could also be applied to other real options models involving incomplete information. |
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Keywords: | Applied probability Investment analysis Real options Incomplete information Leader&ndash follower game |
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