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Impact of Economic and Technical Uncertainties on Dynamic New Product Development

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3 Author(s)
Tao Yao ; Harold & Inge Marcus Dept. of Ind. & Manuf. Eng., Pennsylvania State Univ., University Park, PA, USA ; Bin Jiang ; Hongcheng Liu

A new product development process is usually under economic and technical uncertainties, and adjustable to the arrival of new information. As a result, new product development is not a one-time decision but a dynamic process under uncertainties. This paper applies repeated real options to derive optimal decision-making rules for a firm that faces two repeated options: 1) an incremental innovation project that is relatively easy to be developed and 2) a radical innovation project that offers superior performance but its development is much more difficult. Our findings can help firms make dynamic investment decisions on coexisting new product development projects.

Published in:

IEEE Transactions on Engineering Management  (Volume:60 ,  Issue: 1 )