A Real Options Game Involving Multiple Projects

The equilibrium is derived in a real options game on the basis of a multidimensional state variable. In the game, firms optimize both investment time and project choice in projects that have not been chosen by the leading competitors. We demonstrate how the equilibrium changes with the number of firms, the number of projects, and the correlation between project values. Consistent with previous findings, an increase in the number of firms and a decrease in the number of projects reduce the option value in equilibrium. A new finding suggests that the option value decreases when the numbers of both firms and projects increase by the same amount. Most interestingly, a high correlation between project values plays a positive role in mitigating preemptive competition, unlike in a monopoly. The results complement the literature of both real options games and max-options, and entails new empirical implications.