Competition and strategic alliance in R&D investments: a real option game approach with multiple experiments

Giovanni Villani () and Marta Biancardi ()
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Giovanni Villani: University of Bari
Marta Biancardi: University of Bari

Journal of Economic Interaction and Coordination, 2022, vol. 17, issue 1, No 5, 63-86

Abstract: Abstract In this paper, we analyse the effects that the number and outcomes of R&D experiments have on the strategic equilibria between two firms that can both compete and cooperate in a context of uncertainty. As is well known, R&D projects are characterised by the sequentiality of investments and by the outcomes obtained from the success or failure of their experiments. Furthermore, the positive results and the number of tests carried out in R&D increase the market value of the innovative product. The Real Option Approach evaluates the flexibility of R&D investments and the strategic scenarios. According to Nash equilibria, we show how the market value threshold, for which the investment policy is optimal, depends on the number of experiments and on the information revelation.

Keywords: Real options; Game theory; Information revelation; R&D investments (search for similar items in EconPapers)
JEL-codes: C70 D80 G13 O32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11403-020-00304-3

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