Abstract: This paper considers the market structure which is affected by firm's licensing decision.We develop and apply a real option modeling framework where the underlying state variable can be described by continuous time threshold autoregressive process.We derive the value of R & D project and investment rules,and use numerical analysis to discuss these effect of growth rate and uncertainty of the R & D project revenue and licensing arrangement on the value of R & D project and investment rules.

Key words: technology licensing, R &, D alliance, investment, real option, investment threshold, option game