Real Options: Examples and Principles of Valuation and Strategy
January 2003
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The paper illustrates the use of real options and game theory principles to value prototypical investment projects and capture important competitive/strategic dimensions in a step-by-step analysis of investment decisions (options) under uncertainty. It first illustrates the application of real options principles to a mining concession and to an R&D program. It then provides examples from innovation cases and uses basic game theory principles to discuss other strategic and competitive aspects, especially applicable to oligopolistic industries like consumer electronics. The issue of whether (and when) it is optimal to compete independently or coordinate/collaborate (e.g., via joint R&D ventures or strategic alliances) is given particular attention.
- value
- option
- investment
- strategy
- market
- price
- project
- future
- firm p
- management
- payoff
- valuation
- opportunity
- decision
- philip
- flexibility
- figure
- competitor
- battle
- technology
