The dynamics of preemptive and follower investments with overlapping ownership

48 Pages Posted: 16 Jun 2020 Last revised: 27 Jan 2021

See all articles by Dimitrios Zormpas

Dimitrios Zormpas

CY Cergy Paris Université; ESSEC Business School

Richard R. Ruble

EM Lyon (Ecole de Management de Lyon)

Date Written: January 20, 2021

Abstract

We study how overlapping ownership affects investments in a preemption race with market uncertainty. Internalization of rival payoffs delays follower entry if product market effects are moderate, implying longer incumbency which intensifies dynamic competition. Preemptive and follower investment thresholds increase with volatility as in standard real option models whereas firm value can decrease, and greater volatility makes internalization more profitable. From a welfare perspective there is a tradeoff between dynamic benefit and static costs of overlapping ownership. Whereas it is socially optimal not to have any overlapping ownership in some markets, at low volatility levels we find firms have an insufficient incentive to internalize.

Keywords: common ownership, dynamic competition, real options

JEL Classification: C73, G32

Suggested Citation

Zormpas, Dimitrios and Ruble, Richard R., The dynamics of preemptive and follower investments with overlapping ownership (January 20, 2021). Available at SSRN: https://ssrn.com/abstract=3607311 or http://dx.doi.org/10.2139/ssrn.3607311

Dimitrios Zormpas

CY Cergy Paris Université ( email )

paris
France

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France

Richard R. Ruble (Contact Author)

EM Lyon (Ecole de Management de Lyon) ( email )

23 Ave Guy de Collongue
Ecully, 69134
France

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