Effect of preemption on the R&D investment decision

This paper provided a option games framework of R&D investment evaluation and decision, and discussed the effect of first-mover’s Advantages on R&D strategic investment decision made by firms. And we provided the close form of firm value function under the stochastic conditions of both project yield and operation cost and asymmetric cost of investment, and studied further the effect of equilibrium type, factor volatility and its correlation, and first-mover’s advantages on the optimal investment thresholds, value function and investment time interval. Some new and significant conclusions are drawn and verified further by a numerical example.