Industry Dynamics and Optimal Firm Behavior
Saturday, Jan. 4, 2020 10:15 AM - 12:15 PM (PDT)
- Chair: Herbert Dawid, Bielefeld University
Dynamic Strategic Corporate Finance: A Tug of War with Financial Constraints
AbstractThis paper develops and solves a computational model to understand how the presence of financial market imperfections impacts dynamic strategic interactions between firms and industry dynamics. The main goal is to develop a benchmark theoretical setting that integrates the basic corporate finance insights about the impact of financial market imperfections on corporate investment with the modern literature on dynamic industrial organization.
Predatory Pricing under Uncertainty: Revisiting the Deep Pocket Argument
AbstractPayout policies of firms inherently interact with their decisions in product markets. We analyze this interaction in a continuous time stochastic game between financially constrained and financially unconstrained firms. We depart from the standard literature by allowing the firms to choose both the production strategy and the payout policy. We focus on the link between predation incentives and the payout policy and find that the presence of aggressive competition induces fewer dividend payouts.
Our model predicts that the liquidity position of the prey has an important effect on the production choices of both firms and, thus, on the evolution of profits, cash holdings and stock prices.
Finite Project Life and Strategic Interactions in Investment under Uncertainty
AbstractThis article studies the effects of finite project length and an option to invest that could expire in finite time. In a monopoly setting we find that reduction of the project length delays the investment time whereas the investment size is not affected. Having a finite life of the investment option accelerates investment and reduces the investment size. For an entry deterring incumbent a finite project life implies a smaller investment, whereas there are multiple contrary effects on the investment time. If, in addition, the option life is also finite, this surprisingly leaves the investment decision unaffected.
- L1 - Market Structure, Firm Strategy, and Market Performance
- C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling