Technological Innovation Investment Decision Based On Option Game Theory

Enterprises need continuous technological innovation investment to ensure their survivaland development, and to make a reasonable technological innovation investment decisionshould base on the accurately value of the technological innovation project. Traditionalmethods of technological innovation investment decision can’t quantify the features oftechnological innovation: uncertainty, irreversibility and competitive, so they cause theunderestimation or miscalculation of the value of the technological innovation project easily.Option Game Theory can quantify the features based on Real Option Theory and GameTheory, to make up the defects of traditional methods of technological innovation investmentdecision, in order to value the technological innovation project more accurately.The ability of market reacting and the cost of the technological innovation project (thecost of initial investment, production and R&D, and the duration of the project construction)are the main factors to value the technological innovation project. Technological innovation isdivided into incremental technological innovation and fundamental technological innovation.The threshold of incremental technological innovation is affected by the fluctuation of marketdemand and emergencies in the technological innovation environment (properties, extent andfrequency); the threshold of fundamental technological innovation is affected by thefluctuation of market demand, the emergency in the technological innovation environment,and the ability of R&D.The enterprise with more strength and preference for preemptive investment is called theleader enterprise, otherwise is called the follower enterprise. This paper constructs the investment decision-making option game models of incremental technological innovation andfundamental technological innovation by introducing the influence factors, and analyses theconditions and equilibriums of sequential investment game and preemptive investment gamein these two situations, then investigates the effects of each factor to the investment threshold.The result shows that: in both of two situations, the fluctuation of market demand, the extentand frequency of adverse emergencies have a positive influence to the threshold oftechnological innovation investment; the ability of market reacting, the extent and frequencyof favorable emergencies have a negative influence to the threshold of technologicalinnovation investment. In the process of incremental technological innovation, the cost ofproduction influences the leader enterprise’s threshold of investment most significantly, whilethe duration of project construction influences the follower enterprise’s threshold ofinvestment most significantly; in the process of fundamental technological innovation, thecost of technological R&D influences the leader enterprise’s threshold of investment mostsignificantly, while the duration of project construction influences the follower enterprise’sthreshold of investment most significantly. The ability of technological R&D can expand thescope of preemptive investment game, having a negative influence to the threshold of theirown investment; the follower enterprise’s ability of technological R&D influences the leaderenterprise’s threshold of technological innovation investment little, while the leaderenterprise’s ability of technological R&D influences the follower enterprise’s threshold oftechnological innovation investment significantly. At last, this paper compares the optiongame method with the traditional method of technological innovation investment decision bysimulation.