Game Theoretical Models in New Product Development

Game Theoretical Models in New Product Development

Zhijian Cui (IE Business School, Spain) and Marc-Elliott Finkelstein (IE Business School, Spain)
Copyright: © 2014 |Pages: 10
DOI: 10.4018/978-1-4666-5202-6.ch095
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Background

Conjoint analysis is a well-established multivariate research technique that facilitates conjoint elicitation of consumer preferences of competing product or service features or attributes for multiattribute options (Johnson, 1974; Green & Wind, 1975; Green & Srinivasan, 1978; Green & Srinivasan, 1990). It views products as a bundle of individual attributes, which permits the summation of the set of respondent utility or part-worths to equal the total utility of the product or service, where it is assumed, according to what is called the compensatory rule (Vriens, Oppewal, & Wedel, 1998), that respondents will select the product or service with the set of attributes representing the highest utility. Conjoint analysis therefore implies a decompositional approach of product development. In these hypothetical situations (Ding, Grewal, & Liechty, 2005), by simulating changes in existing products or the introduction of new products, consumer trade-offs are surveyed to understand how designers can tailor their offerings to maximize value, convenience, suitability, and other factors in their products and services and product and service lines (Green & Wind, 1975). Nowadays, conjoint analysis is the dominant methodology for decompositional analysis (Green, Krieger, & Wind, 2001), and has nearly universal academic acceptance (Gibson, 2001). As a result, conjoint analysis has broad usage, ranging from individuals to organizational consumers (Green & Wind, 1975), and applicability, ranging from evaluating new product configurations, to package design, to pricing scheme, to competitive retaliation and market share (Green & Wind, 1975).

Typically, a conjoint analysis is composed of six steps (Green & Srinivasan, 1978). We refer readers to Green & Srinivasan (1990) for a detailed review on how to conduct conjoint analysis.

Key Terms in this Chapter

Extensive Form Game: The extensive form is a specification of a game allowing explicit representation of a number of important aspects, like the sequencing of players' possible moves, their choices at every decision point, the (possibly imperfect) information each player has about the other player's moves when he makes a decision, and his payoffs for all possible game outcomes. Extensive form games also allow representation of incomplete information in the form of chance events encoded as “moves by nature.”

New Product Development: The complete process of bringing a new product to market. A product is a set of benefits offered for exchange and can be tangible (that is, something physical you can touch) or intangible (like a service, experience, or belief).

Pareto Optimality: An outcome of a game is Pareto optimal if there is no other outcome that makes every player at least as well off and at least one player strictly better off. That is, a Pareto Optimal outcome cannot be improved upon without hurting at least one player. Often, an Equilibrium not Pareto Optimal implying that the players' payoffs can all be increased.

Cooperative Game: A game where groups of players (“coalitions”) may enforce cooperative behaviour, hence the game is a competition between coalitions of players, rather than between individual players.

Product Attribute: Characteristics of a raw material or finished goods which make it distinct from other products. Attributes include size, color, functionality, components and features that affect the product's appeal or acceptance in the market.

Non-Cooperative Game: A game in which players make decisions independently. Thus, while players could cooperate, any cooperation must be self-enforcing.

Strategic Form Game: The strategic (or normal) form is a matrix representation of a simultaneous game. For two players, one is the “row” player, and the other, the “column” player. Each rows or column represents a strategy and each box represents the payoffs to each player for every combination of strategies. Generally, such games are solved using the concept of a Nash equilibrium.

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