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Responsible Investment Around the World: Finance after the Great Reset
Type: Book
ISBN: 978-1-80382-851-0

Book part
Publication date: 26 October 2005

Bradford L. Barham and Oliver T. Coomes

Sunk costs are a key feature of extractive industries that profoundly shape regional economic development outcomes. In this chapter, we argue that sunk costs do so by influencing…

Abstract

Sunk costs are a key feature of extractive industries that profoundly shape regional economic development outcomes. In this chapter, we argue that sunk costs do so by influencing both the investment behavior of firms and the organization, as well as the performance, of extractive industries in ways that often deviate substantially from traditional neoclassical models of competitive markets with resource mobility. Sunk costs are defined, and the features that give rise to such costs are identified, followed by an analysis of the impacts of sunk costs on firms, regions, and economies. Sunk costs are shown to underlie two important phenomena associated with the economic experience of resource extraction – “Dutch Disease” and the “resource curse”. The chapter concludes with a discussion of the need for development policy to incorporate often overlooked sunk cost considerations into efforts to promote economic development in extractive economies.

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Nature, Raw Materials, and Political Economy
Type: Book
ISBN: 978-1-84950-314-3

Book part
Publication date: 14 December 2004

Rajshree Agarwal and Barry L. Bayus

New industries are created from the pioneering activities of a few firms. These firms generally face great uncertainty and risk, but also stand to benefit from early mover…

Abstract

New industries are created from the pioneering activities of a few firms. These firms generally face great uncertainty and risk, but also stand to benefit from early mover advantages due to the preemption of resources. Based on an empirical analysis of a diverse set of consumer and industrial innovations introduced in the U.S. over the past 100 years, we find that entrants during the pre-firm take-off stage (termed Creators) have higher survival rates than later entrants that enter between the firm and sales take-off (termed Anticipators), and both of these entrant types have higher survival rates than firms that enter after the sales take-off (termed Followers). Notably, survival rates for Creators and Anticipators do not depend on entry time within the cohort group, i.e. what matters is whether an entrant enters before or after the take-off, not whether it entered first in its cohort. Our results indicate that there is no real option value in waiting when one considers survival as a performance measure, which bodes well for firms interested in creating new industries.

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Business Strategy over the Industry Lifecycle
Type: Book
ISBN: 978-0-76231-135-4

Book part
Publication date: 19 September 2014

David R. King

Beginning with the premise that complementary resources represent the most valuable resource combinations, theory is developed to explain the impact of complementary resources on…

Abstract

Beginning with the premise that complementary resources represent the most valuable resource combinations, theory is developed to explain the impact of complementary resources on firm boundary decisions. Uncertainty surrounding resource combinations or control of a complementary resource influences firm boundaries by impacting access to needed resources. An implication is that acquisition decisions and performance are influenced by prior investment. Resulting insights have competitive advantage implications of interest to both management research and practice.

Book part
Publication date: 13 August 2007

Yong Li, Barclay E. James, Ravi Madhavan and Joseph T. Mahoney

We discuss recent developments in real options theory and its applications to strategic management research, examine the potential difficulties in implementing real options in…

Abstract

We discuss recent developments in real options theory and its applications to strategic management research, examine the potential difficulties in implementing real options in theory and practice, and propose several areas for future research. Our review shows that real options theory has provided substantial insights into investment and exit decisions as well as into the choice of investment modes. In addition, extant research studies have contributed significantly to our understanding of whether and how organizations can benefit from real options. Future research that addresses difficulties in applications will further advance both real options theory and practice in strategic management. We call for future generations of research to enhance the impact of real options as an emerging dominant conceptual lens in strategic management.

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Real Options Theory
Type: Book
ISBN: 978-0-7623-1427-0

Book part
Publication date: 13 August 2007

Jing Li

The application of real options theory to international strategy has surged in recent years. However, it is still a relatively new and loosely defined field, and there are several…

Abstract

The application of real options theory to international strategy has surged in recent years. However, it is still a relatively new and loosely defined field, and there are several constraints on practical applications of this powerful theory. To move forward this field, the paper first provides a systematic analysis of theoretical and empirical contributions of real options theory to three critical issues in international strategy: (1) valuing multinational networks, (2) assessing market entry modes, and (3) evaluating market entry timing. The paper further suggests that future studies can focus on a refined treatment of uncertainty and the development of a dynamic theory in international strategy. Five testable propositions are developed in these directions.

Details

Real Options Theory
Type: Book
ISBN: 978-0-7623-1427-0

Book part
Publication date: 13 August 2007

Jaideep Anand, Raffaele Oriani and Roberto S. Vassolo

This study analyses the determinants of the value of a portfolio of real options and explores implications for strategic management. It focuses the analysis on four elements: the…

Abstract

This study analyses the determinants of the value of a portfolio of real options and explores implications for strategic management. It focuses the analysis on four elements: the number of real options in the portfolio, constraints on the number of options that can be exercised, the volatility of underlying assets, and the correlation between underlying assets. These elements are articulated around a trade-off between growth options and switching options and are applied to different strategic situations of technological, market, and macroeconomic uncertainty.

Details

Real Options Theory
Type: Book
ISBN: 978-0-7623-1427-0

Book part
Publication date: 13 August 2007

Michael J. Leiblein and Arvids A. Ziedonis

This paper examines the application of real option theory to sequential investment decision-making. In an effort to contribute to the development of criteria that discriminate…

Abstract

This paper examines the application of real option theory to sequential investment decision-making. In an effort to contribute to the development of criteria that discriminate between investments that confer growth options from those that confer deferral options, we introduce a conceptual model that explains technological adoption as a sequence of embedded options. Upon the introduction of each successive technological generation, a firm may either defer investment and wait for the arrival of a future generation or invest immediately to obtain experience that provides a claim on adoption of subsequent generations. We propose that deferral and growth option value is dependent on the magnitude, frequency, and uncertainty of inter-generational change, and the nature of rivalry.

Details

Real Options Theory
Type: Book
ISBN: 978-0-7623-1427-0

Book part
Publication date: 15 December 2010

Ian McCarthy

With expenditures totaling $227 billion in 2007, prescription drug purchases are a growing portion of the total medical expenditure, and as this industry continues to grow…

Abstract

With expenditures totaling $227 billion in 2007, prescription drug purchases are a growing portion of the total medical expenditure, and as this industry continues to grow, prescription drugs will continue to be a critical part of the larger health care industry. This chapter presents a survey on the economics of the US pharmaceutical industry, with a focus on the role of R&D and marketing, the determinants (and complications) of prescription drug pricing, and various aspects of consumer behavior specific to this industry, such as prescription drug regulation, the patient's interaction with the physician, and insurance coverage. This chapter also provides background in areas not often considered in the economics literature, such as the role of pharmacy benefit managers in prescription drug prices and the differentiation between alternative measures of prescription drug prices.

Book part
Publication date: 24 May 2021

Rebbecca Reed-Arthurs, Michael P. Akemann and David J. Teece

Recent US federal court rulings have provided new guidance on the use of economic models of bargaining in estimating reasonable royalty damages in patent cases. After reviewing…

Abstract

Recent US federal court rulings have provided new guidance on the use of economic models of bargaining in estimating reasonable royalty damages in patent cases. After reviewing relevant case law and providing an overview of the bargaining range approach, we describe one analytic method (the Rubinstein Bargaining Model) for developing a quantitative starting point with which to divide a bargaining range and explain how it can be tied, at least in part, to the facts and circumstances of the parties around the time of the Hypothetical Negotiation. We also describe how this approach can be used in conjunction with an analysis of other quantitative and qualitative factors related to the bargaining power of the parties, to help estimate reasonable royalty damages.

Details

The Law and Economics of Patent Damages, Antitrust, and Legal Process
Type: Book
ISBN: 978-1-80071-024-5

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