Extensions and Other Applications

Abstract

This chapter discusses new developments and applications of option games. The chapter is organized as follows. Section 13.1 deals with early approaches where competitive entry decisions are treated exogenously. Sections 13.2 and 13.3 present applications to real estate development, and to R&D and patenting, respectively. Section 13.4 addresses information asymmetry among option holders and how it may affect investment strategies. Section 13.5 addresses models dealing with exit. Section 13.6 deals with situations where firms can reduce their capacity utilization to cushion against market downturns. Section 13.7 considers situations where firms make sequential lumpy investment decisions. The last section provides a broad overview of recent developments in the field and other extensions or applications.