Selecting product development projects: Pioneering versus incremental innovation strategies

In this paper, the authors investigate project selection choices of duopolists facing two alternatives: undertaking a ‘pioneering’ type project (Type A) aimed to develop a highly innovative product, or an ‘incremental innovation’ type project (Type B) aimed to develop a less innovative product such as the modification of an existing product. A key objective of the present research is to examine how firm characteristics such as their differential efficiencies in completing projects, differences in the degree of substitutability between Type A and B products, and first mover advantages affect product development strategies. The authors develop a game-theoretic model to obtain insights into the project selection problem taking into account competitive reactions to a firm’s choice of project development strategies and technical uncertainties associated with project completion times. They report model findings on recommended project selection strategies for efficient and disadvantaged firms. Further, the authors examine how a firm’s choice of a Type A project is affected by an increase in the variance of the project completion time of a Type A project relative to that of a Type B project, while the ratio of their mean completion time is held constant.