Asian Journal of Innovation and Policy

Asian Society for Innovation and Policy (아시아기술혁신학회)
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Applying a Two-Stage Option Games Method to Investment Decisions of Business Startups: Case Study of a Smart House Startup in Indonesia

  • Received : 2017.08.16
  • Accepted : 2018.03.09
  • Published : 2018.04.30
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Abstract

In this paper, we present a case study of a new emerging business startup involved in smart house appliances. The irreversible investment concept and real-option theory are introduced as the fundamentals of the model. By using games theory we show that the startup's actions can trigger reactions from other firms. The first part covers initial the research and development stage, while the second part covers production and commercialization. The findings of this study suggest that, given a certain amount of initial investment, an open and shared innovation may lead to hurting a firm's investment while strengthening the competitors' position in the market. However, given the sensitivity analysis, when volatility and demand grow favorably, sharing R&D investment is not a bad option for a new player to adjust its position in the market while still maintaining positive returns.

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References

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