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Competition and strategic alliance in R&D investments: a real option game approach with multiple experiments

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  • Giovanni Villani

    (University of Bari)

  • Marta Biancardi

    (University of Bari)

Abstract

In this paper, we analyse the effects that the number and outcomes of R&D experiments have on the strategic equilibria between two firms that can both compete and cooperate in a context of uncertainty. As is well known, R&D projects are characterised by the sequentiality of investments and by the outcomes obtained from the success or failure of their experiments. Furthermore, the positive results and the number of tests carried out in R&D increase the market value of the innovative product. The Real Option Approach evaluates the flexibility of R&D investments and the strategic scenarios. According to Nash equilibria, we show how the market value threshold, for which the investment policy is optimal, depends on the number of experiments and on the information revelation.

Suggested Citation

  • Giovanni Villani & Marta Biancardi, 2022. "Competition and strategic alliance in R&D investments: a real option game approach with multiple experiments," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 17(1), pages 63-86, January.
    • Handle: RePEc:spr:jeicoo:v:17:y:2022:i:1:d:10.1007_s11403-020-00304-3
    DOI: 10.1007/s11403-020-00304-3
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    References listed on IDEAS

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    Cited by:

    1. Qing He & Yaqin Liu & Qian Yu & Chao Wei, 2022. "Risk Dominance Analysis of R&D Investment Cooperation in Dynamic Option Game," Sustainability, MDPI, vol. 15(1), pages 1-21, December.

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    More about this item

    Keywords

    Real options; Game theory; Information revelation; R&D investments;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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