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R&D Cooperation in Real Option Game Analysis

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  • Giovanni Villani

Abstract

Cooperative investments in R&D are a significant driving force of the modern economy. As it well-known, the R&D investments are uncertain and the strategic alliances create synergies and additional information that increase the success probabilities about R&D projects. The theory of real option games takes into account both the flexibility value of an investment opportunity and the strategic considerations. In particular way, while the non-cooperative options are exercised in the interest of the option holders' payoffs, the cooperative ones are exercised in order to maximize the total partnership value. In our model we develop an interaction between two firms that invest in R&D and we show the effects of cooperative synergies on several equilibriums. Moreover, we consider that the R&D investments are characterized by positive network externalities that induce more benefits in case of reciprocal R&D success.

Suggested Citation

  • Giovanni Villani, 2008. "R&D Cooperation in Real Option Game Analysis," Quaderni DSEMS 19-2008, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
    • Handle: RePEc:ufg:qdsems:19-2008
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Real Exchange Options; Cooperation games; Information Revelation; R&D investments.;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • 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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