Market Entry, Pricing Decisions, & Financial Options

Dean, A. and Baden-Fuller, C (2003) Market Entry, Pricing Decisions, & Financial Options. In: Strategic Management Society, 1 November 2003, Baltimore . (Unpublished) (The full text of this publication is not available from this repository)

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http://www.realoptions.org/papers2003/DeanMarketEn...

Abstract

This paper bridges the literature on real options in strategy with that on financial options. It uses insights from both literatures to show how the use of options contracts can encourage innovators to enter markets by mitigating the effects of uncertainty and permitting the capture of greater value from innovation. The dilemma facing a firm trying to secure the successful launch of its innovation is how to set price to achieve market penetration yet still receive an adequate return. The traditional view is that the low price necessary for penetration may yield such poor returns that the innovator is dissuaded from launch. This problem is exacerbated when the innovator is an entrant and faces retaliatory reactions from incumbents. We explore how financial options can mitigate these effects and recapture the "lost" added value. Using financial options can encourage commitment, overcome delay in launch and allow innovators to capture value quickly. Finally, we explore some of the impediments to executing our ideas, discuss when they might be useful to managers and suggest ways in which they can be tested empirically.

Item Type: Conference or workshop item (Paper)
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HG Finance
Divisions: Faculties > Social Sciences > Kent Business School > International Business and Strategy
Depositing User: Alison Dean
Date Deposited: 15 Sep 2008 10:20
Last Modified: 14 Jan 2010 14:34
Resource URI: http://kar.kent.ac.uk/id/eprint/9140 (The current URI for this page, for reference purposes)
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