Corporate managers who face both strategic uncertainty and market uncertainty confront a classic trade-off between commitment and flexibility. They can stake a claim by making a large capital investment today, influencing their rivals' behavior; or they can take a "wait and see" approach to avoid adverse market consequences tomorrow. In Competitive Strategy, Benoit Chevalier-Roignant and Lenos Trigeorgis describe an emerging paradigm that can quantify and balance commitment and flexibility, "option games," by which the decision-making approaches of real options and game theory can be combined.
The authors first discuss prerequisite concepts and tools from basic game theory, industrial organization, and real options analysis, bringing important materials and ideas together into a unified framework. They then present the new approach in discrete time and later in continuous time, beginning with the building blocks of the basic ideas and tools and culminating in richer theoretical analyses. Their presentation of continuous-time option games is the first systematic coverage of the topic and fills a significant gap in the existing literature.
Competitive Strategy provides a rigorous yet pragmatic and intuitive approach to strategy formulation. It synthesizes research in the areas of strategy, economics, and finance in a way that is accessible to readers not necessarily expert in the various fields involved. The book will be of interest to scholars, students, and academically trained practicing managers interested in applying these ideas.
About the Authors
Benoit Chevalier-Roignant has been an industry consultant and holds a PhD from WHU in Germany.
Lenos Trigeorgis is the Bank of Cyprus Chair Professor of Finance in the School of Economics and Management at the University of Cyprus and Visiting Professor of Finance at the London Business School. He is the author of Real Options (MIT Press, 1995), Strategic Investment, and other books.
"The last two decades have brought a trickle of research that addresses some aspect of the dilemma between flexibility and strategic commitment. Benot Chevalier-Roignant and Lenos Trigeorgis synthesize and consolidate much of this literature and skillfully extend it. With its excellent exposition and focus on applications to industrial organization and business, this book can serve generations of researchers as a hypermarket for one-stop intellectual shopping."
Avinash Dixit, John S. F. Sherrerd
"Competitive Strategy provides a masterful treatment of the use of options and game theory in the analysis of fundamental strategy problems such as capacity expansion, pre-emption, first vs. late mover positioning, etc. Flexibility and commitment are essential characteristics of any competitive strategy and Trigeorgis and Chevalier-Roignant give us a most insightful and practical set of models and tools. This is a must read book for any strategy scholar and decision maker."
Karel Cool, Professor of Strategic Management and BP Chaired Professor of European Competitiveness, INSEAD, France
"Competitive Strategy provides a powerful synthesis of modern finance and corporate strategy. Today we can anticipate innovation in strategic advice and its implementation. Who better to prepare us for it than Lenos Trigeorgis, with his experiences as serious academic researcher, skilled consultant and seasoned teacher, and Benoit Chevalier-Roignant with the fresh, innovative mind of a young scholar? Their carefully developed exposition exemplifies the power of real options and games to clarify and quantify the strategic decision-making of the firm. The authors skillfully transform the art of strategy into 'strategic science'."
Robert C. Merton, Nobel Laureate in Economic Sciences
"This book unifies two major strands of economic theoryreal options and gamesinto a single, coherent framework, and then shows how these ideas can be applied to the formulation of corporate strategy in a rigorous fashion. With deep knowledge, Trigeorgis and Chevalier-Roignant take the art of strategy to new heights of analytic sophistication."
Carliss Baldwin, William L. White Professor of Business Administration, Harvard University
"Fascinating! The rigorous treatment of competitive strategy via 'Option Games' developed in this book will not only unite the field but also give it a new life."
Marcel Boyer, Emeritus Professor of Economics, University of Montreal
"The authors succeed admirably in the ambitious task of amalgamating the separate fields of game theory, industrial organization and real options and their different toolkits into a unified analytical framework of option games."
Professor Jacco Thijssen, University of York, UK
"It is a successful attempt by skilled authors to bring forward new material