Evaluation of firm's loss due to incomplete information in real investment decision

13 years 4 months ago

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We investigate the effect of incomplete information in a model where a start-up with a unique idea and technology pioneers a new market but will eventually be expelled from the market by a large firm's subsequent entry. We evaluate the startup's loss due to incomplete information about the large firm's behavior. We clarify conditions under which the start-up needs more information about the large firm, and reveal the risk of incomplete information about the competitor. The proposed method of evaluating the loss due to incomplete information could also be applied to other real options models involving several firms.

Michi Nishihara, Masao Fukushima

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