Capacity investment timing by start-ups and established firms in new markets

Published

Journal Article

We analyze the competitive capacity investment timing decisions of both established firms and start-ups entering new markets, which have a high degree of demand uncertainty. Firms may invest in capacity early (when uncertainty is high) or late (when uncertainty has been resolved), possibly at different costs. Established firms choose an investment timing and capacity level to maximize expected profits, whereas start-ups make those choices to maximize the probability of survival. When a start-up competes against an established firm, we find that when demand uncertainty is high and costs do not decline too severely over time, the start-up takes a leadership role and invests first in capacity, whereas the established firm follows; by contrast, when two established firms compete in an otherwise identical game, both firms invest late. We conclude that the threat of firm failure significantly impacts the dynamics of competition involving start-ups. © 2011 INFORMS.

Full Text

Duke Authors

Cited Authors

  • Swinney, R; Cachon, GP; Netessine, S

Published Date

  • April 1, 2011

Published In

Volume / Issue

  • 57 / 4

Start / End Page

  • 763 - 777

Electronic International Standard Serial Number (EISSN)

  • 1526-5501

International Standard Serial Number (ISSN)

  • 0025-1909

Digital Object Identifier (DOI)

  • 10.1287/mnsc.1110.1309

Citation Source

  • Scopus