Effect of preemption on the R&D investment decision

Author

Yu, Dangping ; Zhang, Yajie

Author_Institution

Inst. of Nat. Defense Econ. & Manage., Central Univ. of Finance & Econ., Beijing

fYear

2008

fDate

2-4 July 2008

Firstpage

2094

Lastpage

2099

Abstract

This paper provided a option games framework of R&D investment evaluation and decision, and discussed the effect of first-moverpsilas advantages on R&D strategic investment decision made by firms. And we provided the close form of firm value function under the stochastic conditions of both project yield and operation cost and asymmetric cost of investment, and studied further the effect of equilibrium type, factor volatility and its correlation, and first-moverpsilas advantages on the optimal investment thresholds, value function and investment time interval. Some new and significant conclusions are drawn and verified further by a numerical example.

Keywords

decision making; investment; pricing; research and development; share prices; stochastic games; asymmetric cost; equilibrium type effect; factor volatility; firm R&D strategic investment decision making; firm value function; first-mover advantage; operation cost; option games framework; project yield; stochastic condition; Investments; First-mover’s Advantages; Investment Decision; Option Games; Preemption; Real Options;

fLanguage

English

Publisher

ieee

Conference_Titel

Control and Decision Conference, 2008. CCDC 2008. Chinese

Conference_Location

Yantai, Shandong

Print_ISBN

978-1-4244-1733-9

Electronic_ISBN

978-1-4244-1734-6

Type

conf

DOI

10.1109/CCDC.2008.4597694

Filename

4597694