Applying Game Option Model and Simulation in the Optimal Timing of Virtual Enterprise

This paper examines the core enterprise using its first-mover advantage to determine the optimal timing for establishing virtual enterprise. Combined the real options with the principal-agent model, we investigate the revenue allocation between partners. Each enterprise's degree of best effort level in the virtual enterprise is resulted from Cournot model and the reputation effect respectively, corresponding to the Nash equilibrium and Pareto equilibrium. We calculate the option value and threshold value for the core enterprise and compare the timing interval between the two different kinds of equilibrium. The numerical calculation is applied to examine the impact of each member's cost coefficient and contribution coefficient on optimal timing. Summing up, the correlation between members' contribution coefficient and timing of virtual enterprise is not monotonous but showing the feature of lying "S"-shape.