Strategic Replacement Decisions: Parallel vs. Selection Strategies

This study analyzes how firms should approach large, uncertain technology investments. Two strategies are compared: investing in both competing technologies now (parallel) or selecting one today (selection). A binomial lattice model shows that the parallel strategy is better when uncertainty and volatility are high. However, when costs are high or uncertainty is low, picking one technology today is more profitable. The analysis demonstrates how real options thinking gives firms greater flexibility to handle technological uncertainty​.