Joint venture evolution: extending the real options approach

Jing Li, Charles Dhanaraj and Richard L. Shockley
Additional contact information
Jing Li: Faculty of Business Administration, Simon Fraser University, Burnaby, BC, Canada, Postal: Faculty of Business Administration, Simon Fraser University, Burnaby, BC, Canada
Charles Dhanaraj: Kelley School of Business, Indiana University, Indianapolis, IN, USA, Postal: Kelley School of Business, Indiana University, Indianapolis, IN, USA
Richard L. Shockley: Kelley School of Business, Indiana University, Bloomington, IN, USA, Postal: Kelley School of Business, Indiana University, Bloomington, IN, USA

Managerial and Decision Economics, 2008, vol. 29, issue 4, 317-336

Abstract: Real options theory has emerged as a promising avenue to study joint venture (JV) evolution as a strategic response to managing uncertainty. We extend the real options approach by integrating it with game theory. Such a combined method enriches the valuation functions of each partnering firm and helps to identify the optimal decisions for exercising options in a JV. In our model, each firm's synergy from the joint operation and its knowledge acquisition capability (KAC) can significantly influence the competitive dynamics between partners, potentially affecting how each firm decides to acquire, divest, or dissolve. We employ a new solution technique in real options theory to capture the stochastic process of three factors, and use computer simulation to test the model under varying conditions. The results are stated in five testable propositions, providing a better understanding of the dynamics of a JV. We find that symmetries between partners in synergy or KAC contribute to stability or dissolution of the JV, whereas asymmetries in synergy or KAC make acquisition of the JV assets by one partner desirable. Copyright © 2008 John Wiley & Sons, Ltd.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1002/mde.1407 Link to full text; subscription required (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:29:y:2008:i:4:p:317-336

DOI: 10.1002/mde.1407

Access Statistics for this article

Managerial and Decision Economics is currently edited by Antony Dnes

More articles in Managerial and Decision Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().