Simulation Approach for a Two-Player Real Options Signaling Game

Author:

Rigopoulos Georgios1,Karadimas Nikolaos V.2

Affiliation:

1. Department of Digital Innovation Management Royal Holloway University of London Surrey TW20 0EX UK

2. Div. of Mathematics and Engineering Science Department of Military Sciences Hellenic Army Academy Evelpidon Av., 16673 GREECE

Abstract

Situations where hidden information exists among involved parties can be found in a variety of diverse domains, ranging, for example, from market entry to military operations. Game theory provides valuable tools to model and analyze such complex settings, with signaling games being one of the approaches. Entering an existing market poses several challenges for a new player and can be studied from a variety of viewpoints. One way to approach it, is by a real options signaling game, where in the simplest form an entrant and an incumbent firm are participating and hidden information exists. In this paper we focus on the market entry scenario and approach it by means of a real options signaling game. The work builds on previous work and contributes to the limited literature on the domain. We introduce the basic notations and background and describe the game setting. Next, we present a simulation approach demonstrating the basic steps, according to the theory, and present the results of simulation executions. The work aims to build a generic model for such market games on top of a two player setting, but the concept is not limited to market entry only, but further expanded in relevant domains where hidden information exists.

Publisher

World Scientific and Engineering Academy and Society (WSEAS)

Subject

Economics and Econometrics,Finance,Business and International Management

Reference26 articles.

1. Page ME. “Signaling in the labor market”, Economics of Education. 2010 Jan 1:33-6.

2. Shen W, Tang P, Zeng Y. Buyer signaling games in auctions. In Proceedings of the 18th International Conference on Autonomous Agents and MultiAgent Systems 2019 May 8 (pp. 1591-1599).

3. Bakshi N, Kim SH, Savva N. “Signaling new product reliability with after-sales service contracts”, Management Science. 2015 Aug;61(8):1812-29.

4. Rigopoulos, G., “Investment Appraisal by Means of a Two Period Real Options Signaling Game”, International Journal of Economic Practices and Theories, 2014a, Vol. 4, No. 4, 444-454

5. Rigopoulos, G., “Real Options Adoption in Capital Budgeting: A Highlight of Recent Literature”, Journal of Economics and Business Research, 2014b 20.2: 41-51.

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