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

Publication ,  Journal Article
Swinney, R; Cachon, GP; Netessine, S
Published in: Management Science
April 1, 2011

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.

Duke Scholars

Published In

Management Science

DOI

EISSN

1526-5501

ISSN

0025-1909

Publication Date

April 1, 2011

Volume

57

Issue

4

Start / End Page

763 / 777

Related Subject Headings

  • Operations Research
  • 46 Information and computing sciences
  • 38 Economics
  • 35 Commerce, management, tourism and services
  • 15 Commerce, Management, Tourism and Services
  • 08 Information and Computing Sciences
 

Citation

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Swinney, R., Cachon, G. P., & Netessine, S. (2011). Capacity investment timing by start-ups and established firms in new markets. Management Science, 57(4), 763–777. https://doi.org/10.1287/mnsc.1110.1309
Swinney, R., G. P. Cachon, and S. Netessine. “Capacity investment timing by start-ups and established firms in new markets.” Management Science 57, no. 4 (April 1, 2011): 763–77. https://doi.org/10.1287/mnsc.1110.1309.
Swinney R, Cachon GP, Netessine S. Capacity investment timing by start-ups and established firms in new markets. Management Science. 2011 Apr 1;57(4):763–77.
Swinney, R., et al. “Capacity investment timing by start-ups and established firms in new markets.” Management Science, vol. 57, no. 4, Apr. 2011, pp. 763–77. Scopus, doi:10.1287/mnsc.1110.1309.
Swinney R, Cachon GP, Netessine S. Capacity investment timing by start-ups and established firms in new markets. Management Science. 2011 Apr 1;57(4):763–777.

Published In

Management Science

DOI

EISSN

1526-5501

ISSN

0025-1909

Publication Date

April 1, 2011

Volume

57

Issue

4

Start / End Page

763 / 777

Related Subject Headings

  • Operations Research
  • 46 Information and computing sciences
  • 38 Economics
  • 35 Commerce, management, tourism and services
  • 15 Commerce, Management, Tourism and Services
  • 08 Information and Computing Sciences