Infrastructure Investment as a Real Options Game: The Case of European Airport Expansion

Abstract

This paper analyzes the optional and strategic features of infrastructure investment. Infrastructure investments generate other investment opportunities, and in so doing change the strategic position of the enterprise. A combination of real options theory and game theory can capture the elusive value of a firm's strategic modification of its position in the industry. My model focuses on a particular application, the analysis of European airport expansion. Airports with better infrastructures and low blocking potentials capture a strategic position, because they are in a better positiion to exercise growth options that they share with competitors in the industry.