Abstract

This paper provides a real option methodology in order to value a pioneer’s R&D investment opportunity allowing for more potential competitors to enter in the market. To incorporate this competitive dimension, we assume that the pioneer may lose the “competitive dividends” if the real option is not exercised. According to Majd and pindyck (1987) (Journal of Financial Economics 18(1):7–27), in a real options context, “dividends” are the opportunity costs inherent in the decision to defer an investment project and so deferment implies the loss of project’s cash flows. Concerning this, Trigeorgis (1996) (Real Options: Managerial Flexibility and Strategy in Resource Allocation, The MIT Press, Cambridge, (1996) incorporates the preemption effect through the “competitive dividends” which are the cash flows that can be eroded by anticipated competitive arrivals. In particular way, we propose the valuation of a pioneer’s R&D investment assuming that the Development cost can be spent in two moments: t2 or t3 . If the Development cost is realized in t2 no firms enters in the market since the rivals’ R&D plan is not yet concluded otherwise, if the Development cost is delayed until time t3 waiting better market conditions, other rivals may enter in the market and so the opportunity costs, namely dividends, increase. Moreover, we analyze the optimal timing to realize the Development investment, i.e. we determine the conditions for which the pioneer prefers to invest the Development cost at time t2 or t3 .

Autore Pugliese

• Villani Giovanni

Tutti gli autori

• VILLANI G.

Titolo volume/Rivista

Non Disponibile

Anno di pubblicazione

2013

ISSN

0927-7099

ISBN

Non Disponibile

Numero di citazioni Wos

Nessuna citazione

Ultimo Aggiornamento Citazioni

Non Disponibile

Numero di citazioni Scopus

2

Ultimo Aggiornamento Citazioni

Non Disponibile

Settori ERC

Non Disponibile

Codici ASJC

Non Disponibile