Delegated Concept Testing in New Product Development

Jochen Schlapp () and Gerrit Schumacher ()
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Jochen Schlapp: Frankfurt School of Finance and Management, 60322 Frankfurt am Main, Germany
Gerrit Schumacher: Gotthardt Healthgroup AG, 69117 Heidelberg, Germany

Operations Research, 2022, vol. 70, issue 5, 2732-2748

Abstract: Testing a large variety of different product concepts is an integral part of nearly all new product development initiatives—especially in the concept selection phase, where firms seek to identify the most promising concept for further development. Test results are usually collected by agents, who must be incentivized not only to exert effort in testing the concepts but also to report their findings truthfully. We ask: How should a firm structure its concept testing processes when testing efforts must be delegated to self-interested agents? To answer this question, we devise a principal–(multi)agent model that allows us to analyze different testing processes and to compare their relative benefits. We find that several factors determine how the firm should construct its testing processes: the efficiency of concept testing, the extent of heterogeneity in the quality of test outcomes, and the severity of information asymmetry between agents and the firm. Finally, we determine how the firm should adjust agents’ incentives to reflect its chosen testing process and which product concepts should (or should not) be tested.

Keywords: Operations and Supply Chains; project selection; search theory; incentives; resource allocation; information acquisition (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:70:y:2022:i:5:p:2732-2748

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