Investment into container shipping capacity: A real options approach in oligopolistic competition

• Container-industry specific real options investment model in oligopoly.
• Competition, volatility, fuel-efficiency, lead time and variable cost impact assessed.
• Strategic investment increases firm value (as opposed to being a myopic player).
• Shipping alliances are worthwhile from an investment standpoint.

We develop a container industry-specific real options investment model in oligopolistic competition taking into account endogenous price function, fuel-efficient investment, endogenous lead times, and endogenous price formation in the second-hand vessel market. We assess how optimal capacity is influenced by competitive intensity, number of players, volatility, fuel-efficiency, lead time, and cost. Moreover, we investigate optimal investment policies. We find that strategic action increases firm value and that it is worthwhile to consider alliances. Additionally, players in the market should consider retrofitting old vessels for fuel economy in economic downturns and using new, fuel-efficient vessels for capacity expansion in market upswings.