The Research On Technology Investment For B2B E-intermediary Based On Option Game Under Incomplete Information

Faced with the fierce competition, B2B electronic intermediaries have been investing in information technology to improve the service quality of their platforms. It’s difficult to make decisions on investment due to incomplete information, uncertainty, and so on. This paper focuses on information technology investment of two B2B electronic intermediaries under the incomplete information of operating costs. The decision model is developed based on option game theory. Then, the paper shows the equilibriums of two intermediaries in two cases:1) under complete information,2) under incomplete information. Numerical examples are given to analyze the impact of incomplete information, service quality and operating costs on expected profits, and to describe the decision-making processes of the multi-period investment projects.It’s found that, the expected profits of the B2B electronic intermediaries are affected by competitor’s faith that the competitor has the advantage of operating cost under the incomplete information. The bigger the faith is, the lower the expected profits of the B2B electronic intermediary who has the advantage of information are.Besides, the service quality and operating costs of the platforms can affect the intermediaries’ expected profits of information technology investment. The expected profits increase with the decrease of the service quality. While the operating cost of a platform goes up, its expected profit goes down.Last but not least, apart from competitive value, this study explores the option value of the delay of the investment. It’s found that the decision-making processes of the multi-period investment projects are more complex and the expected profits may be higher than those of single period investment projects due to the delay of the investment.