The Effect of First-Mover's Advantages on the Strategic Exercise of Real Options

When real investment opportunities are open to competing firms in the same line of business, strategic considerations become extremely important in determining investment/entry policies. We develop an equilibrium framework for strategic (real) option exercise where the focus is on the effect of first-mover's advantages. The generality of our framework stems from the fact that we allow such advantages to be either temporary or permanent in nature. When the latter is true, economically identical competing firms might end up investing at very distinct times simply due to the effect of first-mover's advantages. When such advantages are substantial and temporary in nature, the rival entry times are drawn further apart as uncertainty increases