Abstract: In an asymmetric duopoly option game-theoretic framework,this paper investigates the impacts of innovation capability asymmetry and the first-move advantage on firms′ strategic R&D investment timing and derives the conditions for the preemptive,sequential and simultaneous equilibrium.We show that when the first-move advantage is significant,the high-capability firm preempts the lower-capability firm.In the situation where the asymmetry between firms becomes sufficiently large,the firms invest sequentially.When the asymmetry among firms is relatively small and so is the first-move advantage,the firms invest simultaneously.We also show that,with the innovation capability increasing,the possibility of simultaneous equilibrium and sequential equilibrium decreases,but that of preemptive equilibrium increases.

Key words: R&D investment, strategic timing, option game, innovation capability asymmetry