Option Games Rivals Play

Chapter

Abstract

Lumpy energy commitments under an oligopoly alter the market strength of rival firms, and this elicits responses that are seldom cooperative. Following option games reasoning, this chapter presents analyses of how symmetric or asymmetric adoption of power technologies would achieve outcomes that differ from net present values (NPVs) under specified market scenarios. Through the interacting effects of prices, volumes, and costs, often altered by rival firms’ actions, renewables alters portfolio values by eroding power prices. The simulations examine how market positions are altered when rival firms take symmetric or asymmetric diversification strategies. To make option games accessible to managers, relevant intuitions are presented, as well as a conceptual approach, to help to quantify feasible outcomes.

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Copyright information

© The Author(s) 2017

Authors and Affiliations

  1. 1.IESE Business SchoolUniversity of NavarraBarcelonaSpain

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