Non‐additivity in portfolios of exploration activities: a real options‐based analysis of equity alliances in biotechnology

Roberto S. Vassolo, Jaideep Anand and Timothy B. Folta

Strategic Management Journal, 2004, vol. 25, issue 11, 1045-1061

Abstract: Firms invest in exploration‐oriented activities to seek competitive advantage and in response to changing environments. Real options formulations represent an emerging strand of thinking on such investments. In this paper we begin with the observation that firms often simultaneously invest in multiple exploration projects. We identify two sources of potential interactions among these real options investments. First, we investigate the effects of correlations between the outcomes in different options. Second, we analyze the effects of investments that are fungible across project options. We show that under different conditions multiple options can be sub‐additive (due to redundancies in outcomes) or super‐additive (due to fungible inputs). We test the implications of our model with data from the biotech industry and find supporting evidence. Our model and results have some interesting implications for the exploration literature and real options lens. Copyright © 2004 John Wiley & Sons, Ltd.

Date: 2004
References: Add references at CitEc
Citations: View citations in EconPapers (79)

Downloads: (external link)
https://doi.org/10.1002/smj.414

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:bla:stratm:v:25:y:2004:i:11:p:1045-1061

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0143-2095

Access Statistics for this article

More articles in Strategic Management Journal from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().