Research On The Investment Value And Strategy Of Duopoly Firms Under Uncertainty In The Patent

Along with the development of world economic globalization, each firm has toface the competition from all over the world. And increasingly intense competitionmakes the managers pay more attention to the growth of the competitive advantagewhich is the core of firm performance. As we all know competition between firmshas changed from competition capital to technological competition, and thetechnology innovation has become the foundation of competitive advantages forfirm to keep the market position. Especially for high-tech firm, considering theuncertainty of investment under economic globalization investment, investmentflexibility and competition, how to make the right choice is especially important.Because the Real options method considering the value of flexible investment, so itis suitable for solving the investment value and strategy problems uncertaintytechnology innovation. Game theory considering the prediction behavior and actualbehavior of individual, and study their optimization strategy, so we combine thegame theory and real option theory together to analyze the investment value andstrategy problems under uncertain. This new method improves make the process ofinvestment analysis more scientific, this just make up for the traditional method.This paper uses a continuous-time real-options methodology to develop aduopoly patent-race model, which is applicable for examining financial propertiesof intensive firms such as firms in the business of creating new software, inventingNANO or WI-FI technology, or innovating new drugs. Numerical analysis in thisstudy shows that intense competition drives a firm to invest more aggressively,which then pushes up its cost of capital and return volatility while introducingnegative return correlation with its competitor.Furthermore, we find that a firm’sposition in competition has important impacts on its financial properties. Forinstance, a firm’s cost of capital is a non-monotonic function of its relative positionin the race. In addition, based on the basic model, through the analysis of firm betacharacteristics we found that a firm’s position in competition also has importantimpacts on its beta characteristics. Firms involved in a patent have higher CAPMbeta relative to the joint monopoly when both firms invest in the patent race. Thefirm’s CAPM beta increase as it has technological setbacks or its competitor makes positive progresses.This article is divided into six parts, the first part of this paper mainly aboutthe research background, significance and the direction of the research, method andthe literature review. Through literature review, we points out the deficiency of thetraditional investment strategy theory as ignoring the potential of investmentopportunity, and flexible management etc, this draw out this new method bycombining the game theory and real option theory together. In the second part, wediscuss the definition and characteristics of patent and the patent race. And we alsoanalysis the influence factors of investment strategy in this part. In the third part wedevelop a duopoly patent-race model with continuous-time real-optionsmethodology, and in our model we have considered the market demand uncertainty,the firm technology uncertainty and the element cost uncertainty. In the fourth part,we assumed values of exogenous parameters in the model and get the numericalimplementation result. In this section, we analyze briefly how market demanduncertainty, dividend yield, technological uncertainty and element cost uncertaintyaffect firms’ investment decisions. In the fifth part, based on the basic structure ofmodel, we analysis the characteristics of CAPM beta in the process patent racewhich we considered as the financial risks of firm. In The last part, we summary themain conclusion and the future research expansion.