R&D Cooperation in Real Option Game Analysis

Giovanni Villani ()

Quaderni DSEMS from Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia

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.

Keywords: Real Exchange Options; Cooperation games; Information Revelation; R&D investments. (search for similar items in EconPapers)
JEL-codes: C71 D80 G13 O32 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2008-10
New Economics Papers: this item is included in nep-gth, nep-ino, nep-ipr, nep-pr~, nep-mic and nep-ppm
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