Joint Product Development and Inter-firm Innovation

This thesis examines the strategic drivers and processes governing the development of products and/or technologies by multiple economic entities. The thesis adopts an operational approach in addressing the question and examines the how of joint product development. For this purpose, the different mechanisms that enable joint product development licensing, outsourced development, and codevelopment are considered, and the focus is restricted to the analysis and characterization of the optimal management of joint product development mechanisms. Regarding the mechanism of licensing, the thesis examines both its dynamic inter-temporal implications (i.e., how licenses should be structured given that licensing will also occur in the future) as well as the role of the technology in question (i.e., how are licenses affected by the type of technology being licensed). Along the first dimension, the thesis finds that license fees (and the negotiation with potential licensees) may be structured so as to induce a controlled diffusion depending on the technology roadmap the provider firm has laid out for the future. On the second dimension, the study finds that when the technological solution being licensed requires minimal integration from the licensees side, it may be beneficial to restrict attention to a few potential licensees instead of licensing to the entire market. On the codevelopment side, the thesis presents an original case study that uncovers some of the salient features present in many joint development efforts. Subsequently, a mathematical model is proposed that captures the key dimensions of the phenomenon that were identified through the case study. Analysis of the normative model reveals the key role of market and development uncertainty in structuring the formal contractual agreements and sharing the value created through the codevelopment effort.Ph.D.Committee Co-Chair: Gaimon, Cheryl; Committee Co-Chair: Kavadias, Stylianos; Committee Member: Ferguson, Mark; Committee Member: Keskinocak, Pinar; Committee Member: Singhal, Vino

Consumer Mental Accounts & Implications to Selling Base-Products and Addons

Firms in a variety of industries offer addon products to consumers who have previously purchased a base-product. We posit that consumers, in making their decision whether to purchase an addon that complements the base-product, find a greater need for the value offered by the addon when the “unrecovered” value (i.e., price paid minus the benefits obtained so far) associated with the base-product is higher. We conduct experiments that test the proposed hypothesis, and examine the strategic implications of such consumer decision making to a firm who sells base-product addon pairs. Consistent with our hypothesis, the experiments show that the “unrecovered” value associated with the base-product is positively correlated to a consumer\u27s likelihood of purchasing the addon. Formal modeling of this bias shows that firms may find penetration pricing strategies (such as loss-leader pricing) suboptimal. Furthermore, the identified bias leads to the firm spending more resources toward enhancing the both base-product quality and the quality of the addon, especially so when the addon will be offered before the consumer has a chance to extensively use the base-product. Finally, the effect of competition in the base-product market is also considered

Consumer Mental Accounts and Implications to Selling Base Products and Add-Ons

Firms in a variety of industries offer add-on products to consumers who have previously purchased a base product. We posit that consumers, in making their decisions as to whether to purchase add-ons that complement the base products, find a greater need for the value offered by the add-ons when the “unrecovered” value (i.e., price paid minus the benefits obtained so far) associated with the base products is higher. We conduct experiments that test the proposed hypothesis and examine the strategic implications of such consumer decision making to a firm that sells base product add-on pairs. Consistent with our hypothesis, the experiments show that a consumer\u27s unrecovered value associated with the base product is positively correlated to his likelihood of purchasing the add-on. Formal modeling of this bias shows that firms may find penetration pricing strategies (such as loss leader pricing) suboptimal. Furthermore, the identified bias leads the firm to spend more resources toward enhancing both the base product and the add-on quality, especially so when the add-on will be offered before the consumer has a chance to extensively use the base product. Finally, the effect of competition in the base product market is also considered

Optimal Prototyping on Experimentation Platforms

Testing and prototyping comprise an integral part of almost any new product development process. Recent emergence of experimentation platforms who specialize in offering evaluation/assessment of prototypes to outside parties have opened up the possibilities for firms in reconfiguring their product development processes. Firms can, by outsourcing the evaluation stage of their dev-test cycles, obtain cost efficiencies and scale. At the same time, a lack of visibility into the actual evaluation process and the possible ambiguity in the product development firm\u27s requirements may lead to potentially noisy evaluations, raising concerns regarding the fidelity and accuracy of the results. The current article formulates a model of “outsourced evaluations” and examines how the noisy low-fidelity evaluations alter the firm\u27s optimal prototyping. Our results demonstrate that imperfect evaluation fidelity changes the client\u27s optimal experimentation, with starkest difference being that it can make it optimal for the client to select and launch a prototype that did not yield the best evaluation. In addition, our analysis reveals that the client should optimally request most precise measurements when their ex-ante uncertainty is moderate (not too high or low). Finally, examining the optimal measurement technology choices of the platform, we find that when the client\u27s ex-ante uncertainty increases from moderate to high values, the platform should offer lower fidelity evaluations, but at a higher fee. We develop managerial insights for how the optimal choice of fidelity and the optimal length of the evaluation cycle should be planned depending on the platform\u27s evaluation fees and the client\u27s ex-ante uncertainty. The resulting framework can offer guidance to product and software development firms who leverage external experimentation platforms