Timing and green decisions for competitive manufacturers under demand uncertainty and risk aversion

Abstract

AbstractLeveraging real options theory, we have constructed a utility‐based model to examine the influence of uncertainty, risk aversion, and competition on the optimal entry timing for green manufacturers and traditional manufacturers, as well as the degree of greenness for follower products. Our analysis reveals that increased uncertainty and risk aversion enhance the value of investment opportunities for manufacturers, thereby raising their investment thresholds. Even though competition reduces the value of market entry for the leader compared to monopoly, its investment thresholds are unaffected by competition. More interestingly, consumer green preferences exhibit a non‐monotonic impact on green enterprise's entry timing.