2006
DOI: 10.1016/j.rfe.2005.12.001
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Real options and games: Competition, alliances and other applications of valuation and strategy

Abstract: This paper illustrates the use of real options valuation and game theory principles to analyze prototypical investment opportunities involving important competitive/strategic decisions under uncertainty. It uses examples from innovation cases, alliances and acquisitions to discuss strategic and competitive aspects, relevant in a range of industries like consumer electronics and telecom. It particularly focuses on whether it is optimal to compete independently or coordinate/collaborate via strategic alliances.

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Cited by 67 publications
(34 citation statements)
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“…For example Huisman and Kort (2004) find out a dynamic duopoly in which firms take part in the adoption of new technologies. Smit and Trigeorgis (2006) illustrate the use of real options valuation and game theory concepts to consider original investment opportunities including important strategic decisions under uncertainty. It uses innovation cases, unions and gains to discuss strategic and competitive features, applicable in industries like consumer electronics and telecom.…”
Section: Technology Investments As Real Optionsmentioning
confidence: 99%
See 1 more Smart Citation
“…For example Huisman and Kort (2004) find out a dynamic duopoly in which firms take part in the adoption of new technologies. Smit and Trigeorgis (2006) illustrate the use of real options valuation and game theory concepts to consider original investment opportunities including important strategic decisions under uncertainty. It uses innovation cases, unions and gains to discuss strategic and competitive features, applicable in industries like consumer electronics and telecom.…”
Section: Technology Investments As Real Optionsmentioning
confidence: 99%
“…In so doing, they use the option value of waiting. Although, the option value of waiting may have been overestimated when the risk of competitive abrasion or prevention is excluded (Smit and Trigeorgis 2006;Aleksandrov et al 2013;Levaggi et al 2012;Podoynitsyna et al 2013). Certainly, the option value without competition is only an upper limit of the option value with competition.…”
Section: Effects Of Competition On Investmentmentioning
confidence: 99%
“…In practice a management investment strategy is dynamic (Smit, Ankum 1993). The real option approach enables us to treat investment decisions as "wait and see" situations, where the sheer possibility of a decision postponement is a source of relevant value (Smit, Trigeorgis 2006). Thanks to the analogy between investment decisions flexibility and financial options, financial option valuation methods can be used and a firm can be seen as a collection of assets and growth options connected with them (Myers 1977).…”
Section: Real Option Games -Strategic Decision Flexibility and Competmentioning
confidence: 99%
“…Thanks to real option games it is possible to take into account three important sources of value of an investment: (1) value of future cash flows resulting from immediate realization of an investment (NPV), (2) value of flexibility connected to active strategic management (time value of the option) and (3) value of strategic interactions in a competitive environment (value assessed by using game theory) (Smit, Trigeorgis 2006).…”
Section: Real Option Games -Strategic Decision Flexibility and Competmentioning
confidence: 99%
“…In order to integrate the effect of "not being the first mover" into the analyses, some studies use a game theoretic real options approach [4,37,40,41].…”
Section: Real Options Approachmentioning
confidence: 99%