Investment with network externality under uncertainty

Chia Chi Lu, Weifeng Hung, Jyh Jian Sheu, Pai Ta Shih

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

The purpose of this paper is to develop a real option model with a stochastic network size to simultaneously consider firm's investment and household's consumption behaviors in an equilibrium framework. First, the consumer's waiting-to-buy effect is crucial in determining trigger network size of firm's investment. Second, increasing network externality has an ambiguous effect on trigger network size of firm's investment. Third, using NPV rule not only underestimates trigger network size but, also possibly results in the misleading relationship between network externality and trigger network size.

Original languageEnglish
Pages (from-to)555-564
Number of pages10
JournalReview of Quantitative Finance and Accounting
Volume36
Issue number4
DOIs
StatePublished - May 2011

Keywords

  • Consumer's Waiting-to-Buy Effect
  • Network Externality
  • Real Option Investment

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