REPUTATION, UTILITY AND TECHNOLOGICAL INNOVATION STRATEGIES

Tiaojun Xiao (), Gang Yu () and Zhaohan Sheng ()
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Tiaojun Xiao: Graduate School of Management Science and Engineering, Nanjing University, Nanjing, Jiangsu 210093, China
Gang Yu: Department of Management Science and Information Systems, McCombs School of Business, The University of Texas at Austin, Austin, Texas 78712-1175, USA
Zhaohan Sheng: Graduate School of Management Science and Engineering, Nanjing University, Nanjing, Jiangsu 210093, China

International Journal of Information Technology & Decision Making (IJITDM), 2004, vol. 03, issue 01, 81-100

Abstract: In order to study the optimal R&D strategies of a firm in a dynamic environment, this paper introduces a reputation model on two-stage R&D decision-making by employing signaling games based on Schumpeter's process of creative destruction. There are two players in the game. One is a sender with private information on its own synthesized capability of typeH(high) andL(low), and the other is a receiver without private information. The reputation model studies the typeLsender on whether there is an incentive to build reputation in first phase. We solve the game model without considering reputation by applying adverse induction method and compare the results with that of using reputation. We show that the optimal signal of the typeLsender is larger in phase two if it builds up reputation in phase one. The utility of the typeLsender is less in phase one if it builds up reputation in phase one. However, it will receive higher utility in phase two. Our results can be applied to setting marketing and sales strategies.

Keywords: Reputation; utility; technological innovation; signaling game; algorithm (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1142/S0219622004000052

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