The business model is constantly changing in the enterprise life cycle. A large number of studies show that business model innovation enables enterprises to improve their processes and operation modes, reduce costs, create new markets, improve market efficiency, gain competitive advantages, and achieve higher value and business performance. However, since returns on business model innovation are uncertain and business model innovation can easily be imitated by competitors, it is more difficult to evaluate the value of business model innovation. This paper solves the problem of business model innovation or imitation strategy choice under uncertain conditions by constructing a real option game model. The model is based on the assumption of a duopoly market, namely when enterprise A carries out business model innovation, enterprise B can choose to innovate alone or imitate in the middle period. The results of two-stage binary tree analysis show that the value of business model innovation or imitation is only related to enterprise market share α and base period multiple I（a ratio of base period cash flow to innovation investment）. When the base period multiple is very high and the enterprise shares are not much different, business model innovation is the best choice for both the two companies. When the base period multiple is medium and the enterprise shares are not much different, it is possible that there is a combination of equilibrium strategies that the small enterprise participates in business model innovation and the large enterprise business model imitation. When the base period multiple is not low and the enterprise shares are much different, there is a ‘pig game’ that large enterprise participates in business model innovation, and the small enterprise business model imitation; when the base period multiple is low, both small and large enterprises do not have the motivation for innovation. Therefore, business model innovation or imitation needs to take current market shares and initial returns of a project into account. This paper expands the application of real option, which is of great significance to the construction of business model innovation value evaluation model. In the field of business model innovation, theoretical concept construction, measurement scale development and empirical research have been basically completed, which focus on the impact of business model innovation on business performance. Few studies have analyzed the value of business model innovation from the perspectives of mathematical models and game theory, so it is a relatively new perspective to evaluate the value of innovation and imitation by using the real option game theory. Business model innovation is a systematic change, which is more complex than common project investment. This paper highlights consideration of uncertainty and opponent decision-making, which is more in line with the actual situation. On the other hand, the existing research on real option mostly adopts Black-Scholes option pricing method. However, the returns on business model innovation are sustained, belonging to American-style option, so we adopt the binary tree pricing method to take the revenues during the project period into account, providing a directional basis for future research and development. In the existing literature, the NPV method is commonly used in enterprise investment analysis and business model profit forecasting. The real option game has not been widely used, and more researchers are required to enrich the method for more rational use in practice. Firstly, the problem becomes more complex and closer to reality when considering multiple actors and multiple policy choices. When the binary option is exceeded, the binary tree method will not be applicable. Secondly, another complicated task is about the measurement of uncertainty in real option. There are many factors that have risks. It is a future research direction for scholars to unify them into one variable or independent comprehensive analysis of multiple variables.
Business Model Innovation or Imitation? Strategy Study Based on Real Option Game Theory
Foreign Economics & Management Vol. 40, Issue 03, pp. 79 - 91 (2018) DOI:10.16538/j.cnki.fem.2018.03.006
 Amit R, Zott C. Value creation in E‐business[J]. Strategic Management Journal, 2001, 22(6‐7): 493-520.
 Aspara J, Hietanen J, Tikkanen H. Business model innovation vs replication: Financial performance implications of strategic emphases[J]. Journal of Strategic Marketing, 2010, 18(1): 39-56.
 Casadesus-Masanell R, Ricart J E. From strategy to business models and onto tactics[J]. Long Range Planning, 2010, 43(2): 195-215.
 Copeland T. From expected cash flows to real options[J]. Multinational Finance Journal, 2015, 14(1-2):1-27.
 Gambardella A, McGahan A M. Business-model innovation: General purpose technologies and their implications for industry structure[J]. Long Range Planning, 2010, 43(2-3): 262-271.
 Giesen E, Berman S J, Bell R, et al. Three ways to successfully innovate your business model[J]. Strategy & Leadership, 2007, 35(6): 27-33.
 Hedman J, Kalling T. The business model concept: Theoretical underpinnings and empirical illustrations[J]. European Journal of Information Systems, 2003, 12(1): 49-59.
 Jan Y C. Strategic investment in Taiwan chain and franchise stores: A real options and Game-theoretic approach[J]. Global Journal of Business Research, 2011, 5(4): 25-37.
 Kastalli I V, Van Looy B. Servitization: Disentangling the impact of service business model innovation on manufacturing firm performance[J]. Journal of Operations Management, 2013, 31(4): 169-180.
 Kulatilaka N, Perotti E C. Strategic growth options[J]. Management Science, 1998, 44(8): 1021-1031.
 Lambrecht B M. The timing and terms of mergers motivated by economies of scale[J]. Journal of Financial Economics, 2004, 72(1): 41-62.
 Markides C C. Game-changing strategies: How to create new market space in established industries by breaking the rules[M]. San Francisco: Jossey-Bass, 2008.
 Mitchell D, Coles C. The ultimate competitive advantage of continuing business model innovation[J]. Journal of Business Strategy, 2003, 24(5): 15-21.
 Morris M, Schindehutte M, Allen J. The entrepreneur's business model: Toward a unified perspective[J]. Journal of Business Research, 2005, 58(6): 726-735.
 Pateli A G, Giaglis G M. Technology innovation-induced business model change: A contingency approach[J]. Journal of Organizational Change Management, 2005, 18(2): 167-183.
 Pohle G, Chapman M. IBM's global CEO report 2006: Business model innovation matters[J]. Strategy & Leadership, 2006, 34(5): 34-40.
 Pope B J, Gonsior S M, Yeoh S, et al. Uncoupling actin filament fragmentation by cofilin from increased subunit turnover[J]. Journal of Molecular Biology, 2000, 298(4): 649-661.
 Seddon P B, Lewis G, Freeman P, et al. Business models and their relationship to strategy[A]. Currie W L. Value creation from e-business models[M]. Amsterdam: Elsevier, 2004.
 Seelos C, Mair J. Profitable business models and market creation in the context of deep poverty: A strategic view[J]. The Academy of Management Perspectives, 2007, 21(4): 49-63.
 Shackleton M B, Tsekrekos A E, Wojakowski R. Strategic entry and market leadership in a two-player real options game[J]. Journal of Banking & Finance, 2004, 28(1): 179-201.
 Smit H T J, Ankum L A. A real options and game-theoretic approach to corporate investment strategy under competition[J]. Financial Management, 1993, 22(3): 241-250.
 Smit H T J, Trigeorgis L. Real options and games: Competition, alliances and other applications of valuation and strategy[J]. Review of Financial Economics, 2006, 15(2): 95-112.
 Smit H T J, Trigeorgis L. Strategic NPV: Real options and strategic games under different information structures[J]. Strategic Management Journal, 2017, 38(13): 2555-2578.
 Teece D J. Business models, business strategy and innovation[J]. Long Range Planning, 2010, 43(2-3): 172-194.
 Thompson J D, MacMillan I C. Business models: Creating new markets and societal wealth[J]. Long Range Planning, 2010, 43(2-3): 291-307.
 Trigeorgis L, Reuer J J. Real options theory in strategic management[J]. Strategic Management Journal, 2017, 38(1): 42-63.
 Weeds H. Strategic delay in a real options model of R&D competition[J]. The Review of Economic Studies, 2002, 69(3): 729-747.
 Zott C, Amit R. Business model design and the performance of entrepreneurial firms[J]. Organization Science, 2007, 18(2): 181-199.
 Zott C, Amit R. Business model design: An activity system perspective[J]. Long Range Planning, 2010, 43(2-3): 216-226.
 Zott C, Amit R, Massa L. The business model: Recent developments and future research[J]. Journal of Management, 2011, 37(4): 1019-1042.
Cite this article
Liu Zhiying, Zhou Zhangqing, Chen Mingchun, et al. Business Model Innovation or Imitation? Strategy Study Based on Real Option Game Theory[J]. Foreign Economics & Management, 2018, 40(3): 79-91.