eprintid: 1471010
rev_number: 24
eprint_status: archive
userid: 608
dir: disk0/01/47/10/10
datestamp: 2017-03-09 16:22:13
lastmod: 2021-10-18 22:35:00
status_changed: 2017-03-09 16:22:13
type: article
metadata_visibility: show
creators_name: Chronopoulos, M
creators_name: Siddiqui, AS
title: When is it Better to Wait for a New Version? Optimal Replacement of an Emerging Technology under Uncertainty
ispublished: pub
divisions: UCL
divisions: B04
divisions: C06
divisions: F61
keywords: Investment analysis; Real options; Emerging technologies; Dynamic programming
note: © Springer Science+Business Media New York 2015. The final publication is available at Springer via http://dx.doi.org/10.1007/s10479-015-2010-6
abstract: Firms that use an emerging technology often face uncertainty in both the arrival of new versions and the revenue that may be earned from their deployment. Via a sequential decision-making framework, we determine the value of the investment opportunity and the optimal replacement rule under three different strategies: compulsive, laggard, and leapfrog. In the first one, a firm invests sequentially in every version that becomes available, whereas in the second and third ones, it first waits for a new version to arrive and then either invests in the older or the newer version, respectively. We show that, under a compulsive strategy, technological uncertainty has a non-monotonic impact on the optimal investment decision. In fact, uncertainty regarding the availability of future versions may actually hasten investment. By comparing the relative values of the three strategies, we find that, under a low output price the compulsive strategy always dominates, whereas, at a high output price, the incentive to wait for a new version and adopt either a leapfrog or a laggard strategy increases as the rate of innovation increases. By contrast, high price uncertainty mitigates this effect, thereby increasing the relative attraction of a compulsive strategy.
date: 2015-12
official_url: http://doi.org/10.1007/s10479-015-2010-6
oa_status: green
full_text_type: other
language: eng
primo: open
primo_central: open_green
article_type_text: Article
verified: verified_manual
elements_id: 1052418
doi: 10.1007/s10479-015-2010-6
lyricists_name: Siddiqui, Afzal
lyricists_id: ASIDD11
actors_name: Siddiqui, Afzal
actors_id: ASIDD11
actors_role: owner
full_text_status: public
publication: Annals of Operations Research
volume: 235
number: 1
pagerange: 177-201
issn: 1572-9338
citation:        Chronopoulos, M;    Siddiqui, AS;      (2015)    When is it Better to Wait for a New Version? Optimal Replacement of an Emerging Technology under Uncertainty.                   Annals of Operations Research , 235  (1)   pp. 177-201.    10.1007/s10479-015-2010-6 <https://doi.org/10.1007/s10479-015-2010-6>.       Green open access   
 
document_url: https://discovery.ucl.ac.uk/id/eprint/1471010/1/Manuscript%20final.pdf