Leaders, Followers, and Risk Dynamics in Industry Equilibrium

Konferenzbeitrag

We study own and rival risk in a dynamic duopoly with a homogeneous output good. A competitor's options to adjust capacity reduce own-firm risk through a simple hedging channel. For example, if a rival possesses a growth option, an increase in industry demand directly enhances current profits but also encourages value-reducing competitor expansion. As a consequence, when a leader and a follower emerge in equilibrium, risk dynamics depart substantially from previously-studied simultaneous move benchmarks. Own-firm and competitor required returns tend to move together through contractions and oppositely during expansions, providing testable new empirical predictions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Dynamic Models of Investment ; No. D8-V2

Classification and Topics

• Classification: Wirtschaft ; Capital Budgeting; Fixed Investment and Inventory Studies; Capacity ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
• Subject: Growth options and industry risk ; asset pricing and investment decisions ; risk dynamics in oligopolistic industries

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Carlson, Murray ; Dockner, Engelbert ; Fisher, Adlai ; Giammarino, Ron
• Event: Veröffentlichung
• (who): Verein für Socialpolitik
• (where): Frankfurt a. M.
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/37484
• Last update: 10.03.2025, 11:42 AM CET