A new formulation of strategic interactions in a fluctuating market

Although attempts have been made in the operations research literature to combine the real option theory and the game theory examining the consequences of stochastic interaction of decision makings, the situation they consider is limited to the one where firms interact over one project and each firm exercises its option only once. The present paper attempts to extend these studies by combining the real option theory with the repeated game theory. We derive the Nash equilibrium of the strategies of two clothing retailers, who manage the number of ‘seasons’ in order to stay in harmony with the fluctuation of demands.