Abstract: This paper investigates enterprises' decision of the location, pricing and entry timing with asymmetric investment costs in a circular city. Using the option game theory, we construct the dynamic game model of duopoly enterprises with horizontal product differentiation in the circular market, analyze the existing sequential equilibrium and preemptive investment equilibrium, and depict the sub-game perfect equilibrium of the dynamic game under the Stackelberg Equilibrium. The study shows that the profit of enterprises increase with the increase of product differentiation; the enterprise with cost advantage always enters the market as a leader; when the cost asymmetry of two enterprises is less than the critical value, the leader's entry timing is controlled by the threat of preemption, and the leader's profits brought by cost advantage will be damaged; the entry timing of the follower is not affected by the degree of cost asymmetry.

Key words: Asymmetric duopoly, Real option, Product differentiation, Entry timing