Valuation of a new entrant in an oligopolistic market, including its option to abandon: A real-life case

Roux Martinez, Felix Eduardo and Solana Perez, Pablo and Alonso, Susana (2011). Valuation of a new entrant in an oligopolistic market, including its option to abandon: A real-life case. "African Journal of Business Management", v. 6 (n. 10); pp. 3790-3802. ISSN 1993-8233. https://doi.org/10.5897/AJBM11.1053.

Description

Title: Valuation of a new entrant in an oligopolistic market, including its option to abandon: A real-life case
Author/s:
  • Roux Martinez, Felix Eduardo
  • Solana Perez, Pablo
  • Alonso, Susana
Item Type: Article
Título de Revista/Publicación: African Journal of Business Management
Date: March 2011
ISSN: 1993-8233
Volume: 6
Subjects:
Freetext Keywords: Real Options; Option to abandon; Oligopolistic market; Monte Carlo simulation; Binomial trees
Faculty: E.T.S.I. Industriales (UPM)
Department: Ingeniería de Organización, Administración de Empresas y Estadística
Creative Commons Licenses: Recognition - No derivative works - Non commercial

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Abstract

The purpose of this paper is to increase current empirical evidence on the relevance of real options for explaining firm investment decisions in oligopolistic markets. We study an actual investment case in the Spanish mobile telephony industry, the entrant in the market of a new operator, Yoigo. We analyze the option to abandon in order to show the relevance of the possibility of selling the company in an oligopolistic market where competitors are not allowed free entrance. The NPV (net present value) of the new entrant is calculated as a starting point. Then, based on the general approach proposed by Copeland and Antikarov (2001), a binomial tree is used to model managerial flexibility in discrete time periods, and value the option to abandon. The strike price of the option is calculated based on incremental EBITDA margins due to selling customers or merging with a competitor.

More information

Item ID: 11625
DC Identifier: http://oa.upm.es/11625/
OAI Identifier: oai:oa.upm.es:11625
DOI: 10.5897/AJBM11.1053
Official URL: http://www.academicjournals.org/AJBM/abstracts/abstracts/abstracts2012/14Mar/Roux%20et%20al.htm
Deposited by: Memoria Investigacion
Deposited on: 10 Jul 2012 09:56
Last Modified: 20 Apr 2016 19:39
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