Option-games analysis on software clusters in China

In this paper, an important and intriguing aspect between open innovation and clustering is the conflict of knowledge acquisition (inflow) and knowledge spillovers (outflow). Firms will locate to maximize their net spillovers as a function of location´s knowledge activity, their own capabilities, and competitor´s anticipated actions. From the data of software industry of China from 2001 to 2007, we find that firms favor locations with different strategies. By using game theory to analyze the situation of two firms in clustering, we find the first mover in the model can create win-win relationship by sharing and recovering its investment.