Integrating efforts for product development and market penetration

Ece Zeliha Demirci and Nesim Erkip

European Journal of Operational Research, 2024, vol. 312, issue 3, 927-937

Abstract: In this paper, we build a decision model to explore an innovative firm’s budget allocation problem, which needs to be solved for each successive generation of a product. The firm introduces the product to the market through a distributor while aiming to maximize the market potential. This goal can be achieved by investing in R&D and increasing availability using subsidies registered to the distributor. We analyze the problem using a game theoretical model and provide a guideline for the funding strategy. We show that the optimal budget allocation decision is characterized by two budget thresholds and a threshold on the cost efficiency of R&D. We identify and analyze the effects of two significant parameters, total available budget and efficiency level of R&D, on the optimal solution. In addition, we assess the model’s applicability by examining the expected excess budget requirement and the distributor’s expected profit. We provide valuable managerial insights on when and how to prioritize the two components of the budget.

Keywords: Supply chain management; Product generations; New product development; Budget allocation; Game theory (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221723005556
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:ejores:v:312:y:2024:i:3:p:927-937

DOI: 10.1016/j.ejor.2023.07.017

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().