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Picking a loser: Strategic surprise in a design and development game

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  • James D. Campbell

Abstract

We take a setting in which upstream players produce design ideas and downstream players select among these ideas to develop finished products. Design diversity is valuable at the upstream stage and coordination is valuable at the downstream stage. However, this outcome is not always realized. We show that an intermediary between upstream and downstream can improve on equilibrium outcomes by acting as a coordination and commitment device whose optimal policy must sometimes reward inferior ideas. We apply the model to technology standards, trend‐driven industries, political primaries, and the management of process innovation. We discuss incentives to vertically integrate.

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  • James D. Campbell, 2018. "Picking a loser: Strategic surprise in a design and development game," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 39(7), pages 761-780, October.
    • Handle: RePEc:wly:mgtdec:v:39:y:2018:i:7:p:761-780
    DOI: 10.1002/mde.2958
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