[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ufg/qdsems/19-2008.html
   My bibliography  Save this paper

R&D Cooperation in Real Option Game Analysis

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://www.economia.unifg.it/sites/sd01/files/allegatiparagrafo/29-11-2016/q192008.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Majd, Saman & Pindyck, Robert S., 1987. "Time to build, option value, and investment decisions," Journal of Financial Economics, Elsevier, vol. 18(1), pages 7-27, March.
    2. repec:bla:jfinan:v:43:y:1988:i:5:p:1235-56 is not listed on IDEAS
    3. Armada, Manuel Rocha & Kryzanowski, Lawrence & Pereira, Paulo Jorge, 2007. "A modified finite-lived American exchange option methodology applied to real options valuation," Global Finance Journal, Elsevier, vol. 17(3), pages 419-438, March.
    4. Moon Hoe Lee, 1997. "Valuing Finite-Maturity Investment-Timing Options," Financial Management, Financial Management Association, vol. 26(2), Summer.
    5. Tailan Chi, 2000. "Option to acquire or divest a joint venture," Strategic Management Journal, Wiley Blackwell, vol. 21(6), pages 665-687, June.
    6. Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-186, March.
    7. Bruce Kogut, 1991. "Joint Ventures and the Option to Expand and Acquire," Management Science, INFORMS, vol. 37(1), pages 19-33, January.
    8. McDonald, Robert L & Siegel, Daniel R, 1985. "Investment and the Valuation of Firms When There Is an Option to Shut Down," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 331-349, June.
    9. Mark Shackleton & Rafal Wojakowski, 2002. "The Expected Return and Exercise Time of Merton‐style Real Options," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(3‐4), pages 541-555, April.
    10. Kong, Jean J. & Kwok, Yue Kuen, 2007. "Real options in strategic investment games between two asymmetric firms," European Journal of Operational Research, Elsevier, vol. 181(2), pages 967-985, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Giovanni Villani, 2008. "An R&D Investment Game under Uncertainty in Real Option Analysis," Computational Economics, Springer;Society for Computational Economics, vol. 32(1), pages 199-219, September.
    2. 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.
    3. Giovanni Villani, 2009. "A Strategic R&D Investment with Flexible Development Time in Real Option Game Analysis," CESifo Working Paper Series 2728, CESifo.
    4. Lander, Diane M. & Pinches, George E., 1998. "Challenges to the Practical Implementation of Modeling and Valuing Real Options," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 2), pages 537-567.
    5. Chang, Shuhua & Li, Yue & Gao, Fanglu, 2016. "The impact of delaying an investment decision on R&D projects in real option game," Chaos, Solitons & Fractals, Elsevier, vol. 87(C), pages 182-189.
    6. Giovanni Villani, 2014. "Valuation of R&D Investment Opportunities with the Threat of Competitors Entry in Real Option Analysis," Computational Economics, Springer;Society for Computational Economics, vol. 43(3), pages 331-355, March.
    7. Armada, Manuel Rocha & Kryzanowski, Lawrence & Pereira, Paulo Jorge, 2007. "A modified finite-lived American exchange option methodology applied to real options valuation," Global Finance Journal, Elsevier, vol. 17(3), pages 419-438, March.
    8. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    9. Flavia Cortelezzi & Giovanni Villani, 2009. "Valuation of R&D Sequential Exchange Options Using Monte Carlo Approach," Computational Economics, Springer;Society for Computational Economics, vol. 33(3), pages 209-236, April.
    10. Hunt, Richard A. & Song, Yue & Townsend, David M. & Stallkamp, Maximilian, 2021. "Internationalization of entrepreneurial firms: Leveraging real options reasoning through affordable loss logics," Journal of Business Research, Elsevier, vol. 133(C), pages 194-207.
    11. Siddiqui, Afzal & Takashima, Ryuta, 2012. "Capacity switching options under rivalry and uncertainty," European Journal of Operational Research, Elsevier, vol. 222(3), pages 583-595.
    12. Tailan Chi & Jing Li & Lenos G Trigeorgis & Andrianos E Tsekrekos, 2019. "Real options theory in international business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(4), pages 525-553, June.
    13. Juan Pineiro-Chousa & Marcos Vizcaíno-González, 2020. "A mathematical model for the role of third party funding in reputation building of academic institutions," Review of Managerial Science, Springer, vol. 14(2), pages 365-377, April.
    14. Bengtsson, Jens, 2001. "Manufacturing flexibility and real options: A review," International Journal of Production Economics, Elsevier, vol. 74(1-3), pages 213-224, December.
    15. Smit, Han T.J. & Trigeorgis, Lenos, 2006. "Real options and games: Competition, alliances and other applications of valuation and strategy," Review of Financial Economics, Elsevier, vol. 15(2), pages 95-112.
    16. Flavia Cortelezzi & Giovanni Villani, 2012. "Strategic R&D Investment Under Information Revelation," The Engineering Economist, Taylor & Francis Journals, vol. 57(1), pages 20-40.
    17. Giovanni Villani, 2022. "A Neural Network Approach to Value R&D Compound American Exchange Option," Computational Economics, Springer;Society for Computational Economics, vol. 60(1), pages 305-324, June.
    18. Marc Fréchet & Hassen Raîs, 2015. "Les managers raisonnent-ils par options réelles ? Une étude exploratoire des déterminants," Post-Print hal-01764120, HAL.
    19. Chen, Andrew H. & Kensinger, John W. & Conover, James A., 1998. "Valuing Flexible Manufacturing Facilities as Options," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 2), pages 651-674.
    20. Shackleton, Mark B. & Tsekrekos, Andrianos E. & Wojakowski, Rafal, 2004. "Strategic entry and market leadership in a two-player real options game," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 179-201, January.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ufg:qdsems:19-2008. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Luca Grilli (email available below). General contact details of provider: https://edirc.repec.org/data/emsfoit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.