Investment strategies in the Brazilian industry of aluminum cans: an analysis in the context of real options games

Abstract

Objective - The purpose of this article is to analyze the impact ofpreemption (first move advantage, with the consequent emergence ofnegative externalities to competitors) in situations that consider theoptimal moment for investment, in the context of asymmetric oligopoliesand using options games method.Design/methodology/approach - The developed model was applied to theBrazilian aluminum can industry, in which three firms made up anasymmetric oligopoly, allowing strategic interactions and theirconsequences on firms' investment decisions to be analyzed.Findings - In situations of preemption, the results show the relevanceof using a dynamic model, allowing us to observe the importance ofobtaining a competitive advantage in cost, and showing that it ispossible to obtain monopoly profits or take advantage of isolatedexpansion for a longer period. If this advantage is great, rivals'threat of preemption can be considered irrelevant, and that the firmwill invest in monopolistic time, ignoring the possibility of rivals'entry.Practical implications - In a competitive environment, firms need todecide whether the best strategy is to invest earlier, acquiring acompetitive advantage over their rivals, or to postpone theirinvestments, to acquire more information and mitigate the eventualconsequences of market uncertainties. This work shows how to do it.Originality/value - This is the first work that, by applying realoptions games, studies the impact of preemption of investment inoligopolistic asymmetric environment in the Brazilian industry ofaluminum cans.