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R&D Investment Decision On Emerging Technology

Author

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  • GUANG-JUN DENG

    (School of Management and Economics, The University of Electronic Science and Technology of China, No. 4, Section 2, North Jianshe Road, Chengdu, Sichuan 610054, P. R. China)

  • YONG ZENG

    (School of Management and Economics, The University of Electronic Science and Technology of China, No. 4, Section 2, North Jianshe Road, Chengdu, Sichuan 610054, P. R. China)

Abstract

The prosperity of emerging technology may be triggered by the occurrence of rare events, and once emerging technology booms, there may be an enormous market demand for it. This paper explores the firm's commercial and R&D investment decisions on emerging technology in real options framework. We think that, for the fear that a rare event which occurs prior to R&D success would trigger the emerging technology boom, the firm should carry out prospective R&D in the emerging technology innovation. So the impacts of the R&D hazard rate and the intensity of rare event arrival on the prospective R&D investment strategy are mainly addressed. There are two results. First, the firm is most likely to take the strategy at low, rather than high, probability of technological boom in market-driven innovation. Second, in technology-driven innovation, the huge potential profit of emerging technology in booming period can arouse more attention toward the firm. When the growth rate of profit flow in booming period rises to some degree, the firm may take this strategy unconditionally.

Suggested Citation

  • Guang-Jun Deng & Yong Zeng, 2011. "R&D Investment Decision On Emerging Technology," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 10(03), pages 451-477.
    • Handle: RePEc:wsi:ijitdm:v:10:y:2011:i:03:n:s0219622011004403
    DOI: 10.1142/S0219622011004403
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    References listed on IDEAS

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    1. Martzoukos, Spiros H. & Zacharias, Eleftherios, 2013. "Real option games with R&D and learning spillovers," Omega, Elsevier, vol. 41(2), pages 236-249.
    2. Weeds, Helen, 1999. "Sleeping Patents And Compulsory Licensing: An Options Analysis," Economic Research Papers 269348, University of Warwick - Department of Economics.
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