Evaluation of firms loss due to incomplete information in real investment decision
We investigate the effect of incomplete information in a model where a start-up with a unique idea and technology pioneers a new market but will eventually be expelled from the market by a large firms subsequent entry. We evaluate the start-ups loss due to incomplete information about the large firms behavior. We clarify conditions under which the start-up needs more information about the large firm. The proposed method of evaluating the loss due to incomplete information could also be applied to other real options models involving incomplete information.
incomplete information real options applied probability investment analysis leaderfollower game