Race Meets Bargaining in Product Development

Arbeitspapier

We introduce a model of product development in a firm. Our model describes the process as a multi-stage contest (i.e., race) with an endogenous length (with one stage or two stages) between two workers. We model the payments to workers from the new product using the normatively appealing Nash bargaining solution (see Nash, 1950). In our model the disagreement payoffs endogenously depend on the contest outcome. More precisely, a bargaining advantage is given to the leading worker in the product development contest. We analytically characterize subgame perfect equilibrium effort levels of workers and describe the conditions under which a full-edged final (as opposed to, say, a prototype) product is developed. Our comparative static analyses reveal economically intuitive insights. Finally, we provide an answer to the firm's problem of optimal incentive provision (considering both collective and individual incentives).

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 8109

Classification and Topics

• Classification: Wirtschaft ; Noncooperative Games ; Bargaining Theory; Matching Theory ; Economics of Contract: Theory ; Innovation and Invention: Processes and Incentives ; Management of Technological Innovation and R&D
• Subject: product development ; contests ; Nash bargaining solution ; optimal contracts ; subgame perfect Nash equilibrium ; race

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Karagözoglu, Emin ; Keskin, Kerim ; Saglam, Cagri
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/215111
• Last update: 10.03.2025, 11:41 AM CET