Collaborative Product and Market Development: Theoretical Implications and Experimental Evidence

In alliances jointly developing product and market, we first investigate how (a) the number of networks competing to develop a product, (b) the number of alternative technology platforms, and (c) market sensitivity to product development expenditures affect investments of partnering firms. We find that, in equilibrium, when the number of either competing networks or technologies increases, investments are more likely to be directed toward market, rather than product, development. Second, we consider the case in which firms continue to jointly develop a product but compete individually in the market. Our analysis suggests that forcing alliance partners to compete individually might not attenuate the underinvestment problem associated with new product alliances. Third, we extend the model to consider sequential market entry with rewards based on the order of entry, technology spillover, endogenous market size, and asymmetric technologies. Finally, key predictions of the basic model are tested in two experiments. The aggregate results provide strong support to the qualitative implications of the equilibrium solution but only mixed support to its quantitative predictions.