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Picking a loser: Strategic surprise in a design and development game
Author(s) -
Campbell James D.
Publication year - 2018
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.2958
Subject(s) - upstream (networking) , surprise , downstream (manufacturing) , incentive , outcome (game theory) , industrial organization , process (computing) , diversity (politics) , business , process management , marketing , microeconomics , computer science , economics , operations management , telecommunications , political science , psychology , social psychology , law , operating system
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.