Innovative development strategy of a risk-averse firm considering product unreliability under competition

Wei Zheng, Bo Li, Dongping Song and Yanran Li

Transportation Research Part E: Logistics and Transportation Review, 2023, vol. 172, issue C

Abstract: This paper aims to seek the innovative development strategy for a leading firm in a competitive market when considering product unreliability and risk behavior. A higher innovation level may bring about better product performance. Nevertheless, it may cause some unreliability events which might incur serious negative outcomes (e.g., products recall). Facing uncertain outcomes, the innovative firm may care more about the risk of innovation when making decisions, especially in a competitive market. We build a Stackelberg game model for a competitive market consisting of a leading firm and a competitor. The Conditional Value-at-Risk (CVaR) is used to measure the firm’s risk attitude. The optimal innovation strategy of the leading firm and the response strategy of the competitor is obtained. We find that the optimal innovation strategy takes three different forms depending on the risk attitude and the development cost of innovation. i.e., no innovation, complete innovation and partial innovation. In addition, different from most existing literature on risk-averse players’ pricing decisions, we find that a risk-averse innovative firm may set a higher price to focus on only tech-savvy consumers. Moreover, the effects of innovation are also investigated. We find that the two competing firms can achieve a win–win result by adopting an appropriate innovation strategy.

Keywords: Innovation strategy; Product unreliability; Risk attitude; Competition; Game theory (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1366554522003477
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:transe:v:172:y:2023:i:c:s1366554522003477

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/600244/bibliographic
http://www.elsevier. ... 600244/bibliographic

DOI: 10.1016/j.tre.2022.102970

Access Statistics for this article

Transportation Research Part E: Logistics and Transportation Review is currently edited by W. Talley

More articles in Transportation Research Part E: Logistics and Transportation Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().