Game Theoretical Models in New Product Development

In the past four decades, research of new product development has attracted attention from both academia and practitioners. The success of new product development has been regarded as one important source of firms’ competitive advantage (Krishnan & Ulrich, 2001; Luo, Kannan, Besharati, & Azarm, 2005). In order to guide decision making in product design, several consumerdriven methodologies, such as conjoint analysis, discrete choice model, etc, have been developed in the literature. These methods implicitly assume that the choice of product attribute should solely consider the market (consumer) needs. As a result, these methods seek to elicit “true” consumer preference without considering the strategic interactions among stakeholders in product design. Recently, another school of methods, which are mainly game-theoretically based, have emerged in the literature. These game theoretical models seek to open the “black box” of stakeholder interaction both between and within the organization and offer insights on how such strategic interaction will have an impact on product design. In this chapter, we are going to review some basic game theoretical modes as well as their applications in the product design literature. The methods and applications described in this chapter also have broad applicability in the research of innovation, project management and operations management. In the following sections, we will start with a brief overview of one particular type of consumerdriven product design methods, i.e., conjoint analysis. Providing a comprehensive review of conjoint analysis is clearly beyond the scope of this chapter. The purpose, instead, is to make a clear comparison between consumer-driven methods and game theoretical models, hence achieve a better understanding of how the game theoretical models are complementary to previous methods. Next, we will review game theoretical models in both strategic and extensive forms and discuss their applications in the literature. Thoughts for future research are concluded at the end.