ABSTRACT
This chapter discusses the options approach to investment timing. It provides the concept of economic rent for strategic planning purposes, as well as the influence of competition on the expected economic rent over time. The chapter utilises an options approach for timing investment strategy in different microeconomic market contexts. A strategic investment, such as research and development or a pilot plant can be seen as a first link in a chain of staged or interrelated investment decisions to build a strategic position in a new or growing market. By investing in a strategic project, the firm essentially acquires a foothold in the market in the form of options to capitalize on follow-up investment opportunities. A major difference is the degree of exclusiveness of real investment opportunities, so the call option analogy must be seen in the context of market structure.
