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| Author: | Folta, T.B. O'Brien, J.P. |
| Title: | Entry in the presence of dueling options |
| Journal: | Strategic Management Journal
2004 : FEB, VOL. 25:2, p. 121-138 |
| Index terms: | Industries Entry conditions Uncertainty Options Models |
| Freeterms: | Early mover advantages |
| Language: | eng |
| Abstract: | This paper investigates the influence of industry uncertainty (here as: unc.) on the decision by established firms to enter a new industry. Specifically, examined is the tension between the option to defer, discouraging entry in the presence of uncertainty (here: p-of-u.), and the option to grow, encouraging entry in the p-of-u. when there are early mover advantages. Empirical analysis on data from a broad array of industries revealed that the effect of uncertainty (here: eff-of-unc.) on entry is not monotonic. The findings are the first to find support for the nonmonotonic eff-of-unc. that has only recently emerged in theoretical treatments of real options theory, and amplify the importance of considering both the option to defer and the option to grow when contemplating entry. Furthermore, there is found evidence that the relationship btw. unc. and entry is moderated by: a. irreversibility influencing the value of the option to defer, b. the total value of growth opportunities, and c. early mover advantages magnifying the value of growth options. |
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