| In my dissertation, I investigate how firms make new product decisions when faced with market uncertainty at the front end of the innovative process in a game theoretical way. In my analysis, I take into account that firm's decisions have also strategic implications.; First, I explore an entrant's dilemma as to whether innovate or imitate currently available products, and the incumbent's and entrant's incentive to resolve market uncertainty by conducting market research. In such a context, there can be two types of market uncertainty, i.e. uncertainty regarding duopoly profits, which case doubt on the viability of an imitation strategy, and uncertainty regarding the market potential for innovation. The analysis reveals that there are strategic implications to consider beyond the direct benefits from market research. These considerations may lead to both, neither, or only the entrant conducting such research.; Second, I examine an incumbent's decision whether to pursue a highly uncertain radical innovation or settle for predictable incremental improvements. The incumbent and entrant can have different assessment of the market potential for a radical innovation and also have different market assessment capabilities. The analysis shows that when the entrant's market assessment capabilities are poor, even if the incumbent believes that the market potential for radical innovation is high it pursues incremental innovation so as not to validate the market potential to the entrant. On the other hand, when the incumbent's market assessment capabilities are worse than the entrant's, the incumbent may prefer to pursue radical innovation even if it believes that the market potential for radical innovation is low so to preempt the entrant.; Third, I analyze the conditions under which incumbents prefer to engage in vaporware, suddenware, or trueware. The results show that the incumbent will engage in vaporware (suddenware) when the entrant's signal quality is high (low) or when the incumbent earns higher (equal) duopoly rewards in the event that both succeed at new product development. If suddenware is not feasible the firm will prefer to announce truthfully in some cases rather than to engage in costless preemptive vaporware. |
