Title: Profit-sharing and investment strategies of a one-leader-one-follower R&D alliance with industrialisation risks

Authors: Jing Li; Wei Liu; He Zhang

Addresses: Faculty of Engineering, Nanjing Agricultural University, Nanjing 210031, China ' Faculty of Engineering, Nanjing Agricultural University, Nanjing 210031, China ' Faculty of Engineering, Nanjing Agricultural University, Nanjing 210031, China

Abstract: This paper investigates the profit-sharing and investment strategies for new product development in a one-leader-one-follower R&D alliance while considering the industrialisation risks involved. The long-term value of R&D investment, ROR (rate of return), is used as the decision target by the partners of the alliance. Game models are suggested to inform the decision-making of the R&D alliance. Two cases with different probabilities of industrialisation risks are proposed to demonstrate the different decisions of R&D alliances. The two partners obtain maximal ROR simultaneously under the condition of one case. For the other case, the two partners cannot obtain maximal ROR under the same condition. A dynamic profit-sharing strategy is suggested to manage the R&D alliance. Finally, numerical examples are used to illustrate related issues.

Keywords: innovation; contract design; R&D alliances; profit sharing; game theory; investment strategy; one-leader-one-follower; industrialisation risks; research and development; strategic alliances; R&D investment; RoR; rate of return.

DOI: 10.1504/IJPD.2016.078865

International Journal of Product Development, 2016 Vol.21 No.2/3, pp.175 - 189

Accepted: 05 Jul 2016
Published online: 03 Sep 2016 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article