Business Commons^™

Technology Competition And Optimal Investment Timing: A Real Options Perspective, Robert J. Kauffman, X. Li

Research Collection School Of Computing and Information Systems

Companies often choose to defer irreversible investments to maintain valuable managerial flexibility in an uncertain world. For some technology-intensive projects, technology uncertainty plays a dominant role in affecting investment timing. This article analyzes the investment timing strategy for a firm that is deciding about whether to adopt one or the other of two incompatible and competing technologies.We develop a continuous-time stochastic model that aids in the determination of optimal timing for managerial adoption within the framework of real options theory. The model captures the elements of the decision-making process in such a way so as to provide managerial guidance in …