An Option Game Model of Supplier R&D Co-Competition under Uncertainty

Abstract

In order to improve the market competitiveness of suppliers and their resilience to emergencies, it is of great significance to discuss the investment decision making of suppliers in developing new products under uncertain and competitive environments. In this paper, with the background of knowledge spillover, absorptive capacity, initial R&D investment, and innovation efficiency asymmetry, the uncertainty of price, sales, and cost are incorporated into the evaluation system as three important risk factors. On the basis of the existing real option investment evaluation model, a real option game model of R&D investment of supplier enterprises based on multiple random variables is established. The sensitivity analysis of parameters is carried out with an example of one enterprise’s monitor R&D project. The results depict that the probability of R&D success has a great impact on the value of enterprise options, which depends on the R&D investment, innovation efficiency, and R&D performance of enterprises. Secondly, the drift rate of price, sales, and cost also has a significant impact on improvement in enterprise option value.

Keywords

• real options
• uncertainty
• investment decision making
• option game