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Real Option Games with R&D and Learning Spillovers

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  • Martzoukos, Spiros H
  • Zacharias, Eleftherios

Abstract

We 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.

Suggested Citation

  • Martzoukos, Spiros H & Zacharias, Eleftherios, 2008. "Real Option Games with R&D and Learning Spillovers," MPRA Paper 12686, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:12686
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    References listed on IDEAS

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    Cited by:

    1. Adkins, Roger & Paxson, Dean, 2013. "Deterministic models for premature and postponed replacement," Omega, Elsevier, vol. 41(6), pages 1008-1019.
    2. Han, Aiping & Ge, Jianping & Lei, Yalin, 2016. "Vertical vs. horizontal integration: Game analysis for the rare earth industrial integration in China," Resources Policy, Elsevier, vol. 50(C), pages 149-159.
    3. Lukas, Elmar & Welling, Andreas, 2017. "Efficient non-cooperative bargaining despite keeping strategic information private," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 287-294.
    4. repec:wsi:ijitdm:v:10:y:2011:i:03:n:s0219622011004403 is not listed on IDEAS

    More about this item

    Keywords

    Benefit Analysis; Real Options; Coordination Games; R&D;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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