Research On Product Market Competition And Risk Of Firm's Assets

This paper studies the relationships among the demand uncertainty, product market competition and risks of the firms'assets in the Cournot-Nash equilibrium and real option framework. This paper considers the demand as a random variable, estimates the value of the firms'assets in the Cournot-Nash equilibrium framework, which includes the value of real options. The beta of a firm measures the sensitivity of relative changes in the firm's value to relative changes in the demand factor, depending on the scale of the value of assets in place and real options, and their Ps respectively. So the demand level and product market competition have impact on both of them. This paper finds that when demand is low, firms in more competitive industries have higher risks, whereas when demand is high firms in less competitive industries have higher risks. Allowing firms to enter the industry, this paper finds that the trend of the firm's assets risk in less competitive industries has noting differences before and after allowing firms to enter; the risks of firms'assets in other industries jump to the lower level; especially, the risks of firms in perfect competition industries jump to zero. The relationship between the competition and the risks of firms in other industries remains stable, except of the less competitive and perfect competition industries.In order to examine the correctness of the theory, this paper carries out the empirical research. Independent sample t test and multiple linear regression analysis show that under the high demand, when the demand increases, the risk of firms'assets decreases; the risks of assets under the high level of demand are significantly lower than others. At the same level of demand, when demand level is low, as HHI decreases, the risks of firms'assets increase, which is risks of firms' assets in more competitive industries higher than the less; whereas when the demand is high, as HHI increases, the risks of the firms'assets increase, which is the risks of firms'assets in more competitive industries higher than the less. This theory has been strongly supported by the empirical research results. It means that the theory has a theoretical and practical significance.Finally, based on theoretical and empirical results, this paper offers the suggestion respectively to the investors, firms, and economic management. In short, when they make the decision to invest, operate the firms, or manage the economy, the must take into account the product market demand and competition in order to choose the right investment opportunity and investment methods, and control risk in its tolerance; under this theory, the economic management can correctly guide the flow of capital between industries, make the risk's fluctuation of firms'assets in every industries stable, and ensure that the operation is rational and orderly. It is also conducive to the steady economic growth.