
Real Asset Valuation under Imperfect Competition: Can We Forget About Market Fundamentals?
Chaton, Corinne; Durand-Viel, Laure (2013), Real Asset Valuation under Imperfect Competition: Can We Forget About Market Fundamentals?, Journal of Economics and Management Strategy, 22, 1, p. 125-139. http://dx.doi.org/10.1111/jems.12005
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Article accepté pour publication ou publiéDate
2013Journal name
Journal of Economics and Management StrategyVolume
22Number
1Publisher
Wiley
Pages
125-139
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Show full item recordAbstract (EN)
Real assets are usually valued by computing the stream of profits they can bring to a price-taking firm in a liquid market. This method ignores market fundamentals by assuming that all the relevant information is included in the spot price. Our article analyses the bias resulting from such an approach when the market is imperfectly competitive. We propose a stylised two-period model of the natural gas market with no uncertainty, focusing on strategic interactions between two types of oligopolistic players—pure traders and suppliers with downstream customers—who have access to storage. We show that the true value of storage capacity is not the same for traders and for suppliers. Comparing the latter value with the traditional price-taking valuation reveals a systematic bias that tends to induce underinvestment.Subjects / Keywords
Assets (accounting); profit; gas industry; spot prices; suppliers; natural gasRelated items
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