Title: Market dominance options and asset structure: the case of Microsoft and Cisco

Authors: Wojciech Grabowski

Addresses: University of Warsaw, Poland

Abstract: This paper introduces a class of real options, market dominance options (MDOs), to describe corporate strategic investments in the securities of other firms and M&A processes. An implied corporate project risk measure is extracted from the asset structure and used in real option valuation. The MDO methodology is applied to the study of the feasibility of recent major strategic investments of Microsoft and Cisco. The projected added sales figures implicit in the pricing of these transactions under various competitive scenarios are derived and compared with the actual revenue results.

Keywords: market dominance options; asset structure; Microsoft; Cisco; corporate strategic investments; corporate project risk measure; real option valuation; pricing; revenue.

DOI: 10.1504/GBER.2003.006198

Global Business and Economics Review, 2003 Vol.5 No.1, pp.56 - 74

Published online: 07 Feb 2005 *

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