Risky Preemptive Investment
57 Pages Posted: 20 Mar 2017 Last revised: 27 Jan 2024
Date Written: January 27, 2024
Abstract
Our study assesses the survival odds from strategic firm investment aimed at deterring competitors from entering markets. We develop a dynamic strategic real options investment model for quantifying the relationship between preemptive motives and survival. Under a retail competition context, we use monthly data about fast casual taco chain establishments in Texas where we observe granular strategic investment decisions across a large number of geographic product markets. With this data and our theoretical framework, we demonstrate that the economic conditions that relate to competition intensity appear to impact the relationship between preemptive motives and survival.
Keywords: Dynamic Discrete Choice Models; Entrepreneurship; Firm Investment and Value; Market Power; Product Market Competition; Real Options Theory; Retail Strategy
JEL Classification: G30; G31; L10; L25; L26; L41; L66
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