Value Creation in a Firm Through Coopetition: Real Options Games Approach

Abstract

The main goal and the original contribution of this paper is to find and describe (wait or invest) decision rules of firms based on market conditions (competition or coopetition), the net present value of a project and the investment option value. Investment decision making is described as a game between two players. Since a real options approach is used to find the value of an investment project, the paper falls in the field of real options games (ROG). Analysis of these games may help explain some aspects of firm behavior and give guidelines for managers. It appears that in a purely competitive environment a real options framework will only be applicable when the classic NPV is definitely negative, even if economic calculations indicate its use at positive NPV. Firms which create a coopetition relationship should be more interested in using real options approach. Furthermore, in order for firms to keep their coopetition agreement and receive greater benefits, high-risk projects should be a greater incentive than low-risk projects.