Real Option Games with R&D and Learning Spillovers
AbstractWe model pre-investment R&D decisions in the presence of spillover effects in an option pricing framework with analytic tractability. Two firms face two decisions that are solved for interdependently in a two-stage game. The first-stage decision is: what is the optimal level of coordination (optimal policy/technology choice)? The second-stage decision is: what is the optimal effort for a given level of the spillover effects and the cost of information acquisition? The framework is extended to a two-period stochastic game with (path-dependency inducing) switching costs that make strategy revisions harder. Strategy shifts are easier to observe in more volatile environments.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 12686.
Date of creation: Apr 2008
Date of revision:
Benefit Analysis; Real Options; Coordination Games; R&D;
Other versions of this item:
- Martzoukos, Spiros H. & Zacharias, Eleftherios, 2013. "Real option games with R&D and learning spillovers," Omega, Elsevier, vol. 41(2), pages 236-249.
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-17 (All new papers)
- NEP-INO-2009-01-17 (Innovation)
- NEP-MIC-2009-01-17 (Microeconomics)
- NEP-PPM-2009-01-17 (Project, Program & Portfolio Management)
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