New research by CKGSB Professor Neng Wang challenges traditional economic theory and reveals how companies invest strategically in competitive markets
[March 31, 2026] A new study co-authored by CKGSB Dean’s Distinguished Chair Professor of Finance and Senior Associate Dean Neng Wang is reshaping how economists and business leaders understand corporate investment under competition. The research shows that firms can sustain positive profits even in highly competitive markets, invest strategically based on rivals’ actions, and often benefit from delaying investment rather than rushing in.
The paper, “Option Exercise Games and a Duopolistic q Theory of Investment,” introduces a new framework in which firms dynamically adjust their investment timing in response to competitors. The findings challenge traditional models that predict competition drives profits to zero, demonstrating instead that many competitive equilibria with positive profits can exist.
A New Theory of Investment Under Competition
At the center of the research—co-authored by professors Neng Wang (CKGSB), Min Dai (Hong Kong Polytechnic University) and Zhaoli Jiang (Hong Kong Polytechnic University)—is a new framework for understanding investment under competition, known as a duopolistic q theory of investment. This approach builds on the neoclassic q theory of investment while incorporating dynamic state-contingent strategic interaction between firms.
Unlike earlier models, which features strategies under full commitment by firms, known as open-loop equilibrium, the newly proposed framework much more realistically reflects the notion that firms compete in practice, looking ahead at each point in time taking its market environment and competitors’ action into account. In fact, companies constantly adjust their investment plans in response to competitors.
As Professor Wang explains, “A closed-loop setting allows firms to respond dynamically to their competitors’ strategies, making it a more realistic model of modern markets.”
The result is a richer view of dynamic duopoly competition. Firms do not always invest at the same time. Depending on market demand and relative size:
This dynamic captures the strategic nature of real-options type of investment decisions, where irreversibility is key and thus timing is critical.
How Competition Shapes Corporate Investment Decisions
One of the study’s most important findings is how competition affects the timing and speed of investment.
Rather than pushing firms to extremes, competition creates a balance. The authors find that: “Investment proceeds more slowly than in the… zero-profit closed-loop equilibrium but more rapidly than in the open-loop equilibrium.”
In practical terms, firms neither rush into investment nor delay indefinitely. Instead, they adjust strategically based on competitors’ actions.
This helps explain a long-observed pattern in business. Companies often hold back investment even in growing markets. According to the study, this is not inefficiency—it is strategy.
“Firms can earn positive profits by preserving some option value of waiting,” says Professor Wang, “meaning that delaying investment can be a rational response to competitive pressure.”
Why This Research Matters for Business and Policy
The implications of this research extend across business, finance, and public policy.
For business leaders, the study provides a clearer framework for strategic investment timing. Companies that delay investment may be optimizing—not hesitating—by accounting for competitor behavior.
For investors, the findings challenge the idea that competition quickly erodes value. Instead, competitive markets can still sustain profitability, even when firms compete again each other. This is because a firm anticipates the consequence that it will be punished by its competitors should it invest too aggressively today.
For policymakers, the research offers a more nuanced understanding of competition. Encouraging competitive markets does not automatically lead to overinvestment or underinvestment—the outcome depends on strategic dynamics.
Bridging Real Options and Competitive Strategy
Beyond its immediate applications, the study makes a broader contribution by integrating real options theory with game theory.
This combination allows economists to better model how firms behave in uncertain environments where decisions are irreversible and competitors matter. The result is a more realistic framework for analyzing corporate investment decisions in industries such as technology, real estate, and energy.
A New Perspective on Competition and Profitability
Perhaps the most important takeaway is that competition does not inevitably destroy profits.
Instead, Professor Wang’s research shows that firms can adapt, build reputation, and time their investments in ways that can preserve significant value—even in highly competitive markets.
In today’s fast-changing global economy, understanding investment under competition is more important than ever. This study provides a powerful new lens for doing so.
For business leaders, the message is clear: success is not just about investing faster than competitors—but about investing smarter.
