Track: Product Design and Development
Abstract
New and better products attract more consumers and yield higher profits. However, developing better products usually takes longer, allowing other products to appear and take away a market share. Moreover, the product development process involves uncertainty about the time, cost and quality of the end product. Innovators must take this uncertainty and tradeoffs into account in determining their product development strategies. We model innovation competition as a stochastic game, study its equilibrium, and characterize socially optimal innovation.