""Strategic Investment: Real Options and Games" provides a powerful synthesis of modern corporate finance and corporate strategy. Its arrival could not be more timely for the practice of strategic management. Cumulative developments in finance science and innovations in financial technology over the past three decades have had a profound impact on financial markets and financial institutions globally. However, their influence on the practice of strategic corporate finance has been far more limited. That is changing and as a consequence one can anticipate significant opportunities for innovation in strategic advice and its implementation in the impending future. Who better to prepare us for it than Han Smit and Lenos Trigeorgis, with their combined experiences as serious academic researchers, skilled consultants, and seasoned teachers? Their carefully constructed text uses actual case settings and hypothetical situations to exemplify the power of combining real options and game theory to clarify and quantify strategic analysis of the firm. Whether MBA student or seasoned professional, the reader is in for a treat: Bon Appetit!"--Robert C. Merton, Harvard Business School and Nobel Laureate in Economic Sciences

"This excellent book builds bridges across two dimensions. First, it synthesizes the real options approach to capital investment and game-theoretic analysis of strategic interactions. Second, it spans sophisticated theory and business practice. Academics as well as business managers can learn from it and enjoy its wonderfully clear exposition."---Avinash Dixit, author of "Lawlessness and Economics"

"A tour de force. This book unifies two major strands of economic theory--realoptions and games--into a single, coherent framework, and then shows how these ideas can be applied to the formulation of corporate strategy. With deep knowledge, enlivened by zest and humor, the authors take the reader to the forefront of current thinking."--Carliss Y. Baldwin, William L. White Professor of Business Administration, Harvard Business School, coauthor of "Design Rules: The Power of Modularity"

"In the study of investment decisions, it has been common to focus on either the financial or the strategic aspects of an investment. This admirable book combines the two perspectives, using the tools of real options and game theory. With its wide-ranging and eclectic assortment of theoretical models and case studies, the book will prove useful to students, practitioners, and researchers."--Robert L. McDonald, Erwin P. Nemmers Distinguished Professor of Finance, Kellogg School of Management, Northwestern University, author of "Derivatives Markets"

"This book promises to have a very significant impact on the field of strategic management. For years, the field has struggled to find a way of reconciling two contradictory views: flexibility is good vs. commitment is good. Smit and Trigeorgis provide the framework and tools to evaluate when each strategy will create shareholder value. Very well written, the book provides a wealth of interesting examples. It will certainly be of interest to the strategy/investment analyst and MBA student."--Karel Cool, BP Chaired Professor of European Competitiveness, INSEAD

"This timely pioneering book by preeminent authorities in the field provides a powerful introduction to the combination of two important modern tools for investmentdecisions--real options and game theory. These tools are being increasingly used by consultants and firms. Smit and Trigeorgis show that it is possible to be straightforward and clear when analyzing real investments and framing business plans using sophisticated tools like real options and games. They bypass complexity and focus on intuition and applicability, providing a rich practical framework allowing the reader to analyze investment strategy with eagle-eyed wisdom. Even the most rigorous reader will recognize the power of simplicity in analyzing complex business problems and the richness of the case applications. It is the ideal text not only for undergraduate and MBA students but also for consultants and managers, who will finally get the first readable book on this topic."--Marco A.G. Dias, Petrobras

A new paradigm for balancing flexibility and commitment in management strategy through the amalgamation of real options and game theory. Corporate managers who face both strategic uncertainty and market uncertainty confront a classic trade-off between commitment and flexibility. They can stake a claim by making a large capital investment today, influencing their rivals' behavior, or they can take a "wait and see" approach to avoid adverse market consequences tomorrow. In Competitive Strategy, Benoit Chevalier-Roignant and Lenos Trigeorgis describe an emerging paradigm that can quantify and balance commitment and flexibility, "option games," by which the decision-making approaches of real options and game theory can be combined. The authors first discuss prerequisite concepts and tools from basic game theory, industrial organization, and real options analysis, and then present the new approach in discrete time and later in continuous time. Their presentation of continuous-time option games is the first systematic coverage of the topic and fills a significant gap in the existing literature. Competitive Strategy provides a rigorous yet pragmatic and intuitive approach to strategy formulation. It synthesizes research in the areas of strategy, economics, and finance in a way that is accessible to readers not necessarily expert in the various fields involved.

This compilation integrates various new contributions to the growing "real options" literature. Recent developments in the valuation of capital investment opportunities seen as real options (e.g. to defer, expand, abandon, or switch use) have provided the tools and unlocked the possibilities to revolutionize the field of capital budgeting. The resulting insights, strategies, and techniques enable quantifying the thus far elusive elements of managerial flexibility and various strategic interactions. In an uncertain and constantly changing world marketplace, managerial operating flexibility and strategic adaptability are vital to successfully capitalize on favorable future investment opportunities or limit losses from adverse market developments. This book presents various models and operating strategies, and a variety of applications ranging from acquisitions and divestitures, to natural resource development and pollution compliance. The book's contributions are divided into five parts, covering sections on real options and alternative valuation paradigms for capital investment analysis; on the analysis of general exchange or switching options, and interdependencies among multiple such options; on strategic acquisitions, infrastructure, and foreign investment options; on mean reversion/ alternative formulations in natural resource investments, shipping, and start-up ventures; and on other applications in pollution compliance, land development, flexible manufacturing, and financial default options. Both academic and practitioner interest in these developments is unusually high. The book can serve as supplementary material for the academic market, e.g., in advanced finance courses inoption pricing or capital budgeting, in doctoral seminars, and as a library resource. It may also be of interest to the professional market (e.g. corporate planners and finance executives in the oil, pharmaceutical, auto and a variety of other industries), academics from related areas (e.g. decision analysts or economists), as well as to international readers (academics, doctoral students, and professionals).