Optimal Timing of Real Estate Investment Under an Asymmetric Duopoly

Posted: 9 Nov 2006

See all articles by Yongqiang Chu

Yongqiang Chu

Belk College of Business, UNC Charlotte

Tien Foo Sing

National University of Singapore (NUS) - Department of Real Estate

Abstract

This paper examines the sub-game equilibrium strategies for a duopoly real option model consisting of two firms with asymmetric demand functions. The relative strength of the firms is found to have significant impact on the firms' equilibrium strategies. Preemptive strategies are critical if difference in strength between the two competing firms is relatively small. Short bursts and recession induced overbuilding are two outcomes in the asymmetric duopoly model. The model, however, predicts that the two phenomena occur in earlier phases of market cycles, rather than in the state of depression. In a depressed market with high volatility, the leader and the follower will both choose the waiting strategies. Construction cascade is, therefore, not an expected phenomenon in a depressed market in the asymmetric duopoly framework.

Keywords: dupology game, real options, premptive strategies, and asymmetric demands

Suggested Citation

Chu, Yongqiang and Sing, Tien Foo, Optimal Timing of Real Estate Investment Under an Asymmetric Duopoly. Journal of Real Estate Finance and Economics, Vol. 34, No. 3, 2007, Available at SSRN: https://ssrn.com/abstract=943058

Yongqiang Chu (Contact Author)

Belk College of Business, UNC Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
7046877695 (Phone)

Tien Foo Sing

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
521
PlumX Metrics