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Effort exertion and contract design in collaborative product development with fairness concern

Xiaoming Gong (School of Management, University of Science and Technology of China, Hefei, China)
Liang Gao (School of Public Affairs, University of Science and Technology of China, Hefei, China)
Yuan Chen (School of Management, University of Science and Technology of China, Hefei, China)
Zun Wu (School of Management, University of Science and Technology of China, Hefei, China)

Journal of Modelling in Management

ISSN: 1746-5664

Article publication date: 25 September 2020

Issue publication date: 25 May 2021

108

Abstract

Purpose

This study aims to model collaborative product development (CPD) among a focal firm (FF) and a fairness-concerned external partner (EP). The model is used to explore the impact of fairness concerns on revenue distributing contract and innovation efforts. The study also examines the role of follow-up sales in product development decisions.

Design/methodology/approach

A sequential game-theoretic model is developed to analyze product development decisions between the two parties, where participants exert innovation efforts to promote the product value and a revenue-sharing contract is used to distribute the revenue.

Findings

Fairness concern of EP has significant impacts on decisions. FF has incentives to change the contract in that fairness concerns might decrease his profit. Conditions and results change when the contract is endogenously decided. First, FF tends to develop the product independently. Second, FF may share a smaller revenue fraction with EP, as FF relies more on his own efforts during CPD. Third, FF cannot benefit from fairness concerns, as his profit is not higher than that in the benchmark. Finally, the existence of follow-up sales does not change FF’s decision about whether to collaborate with EP.

Originality/value

This study incorporates fairness preference into CPD decisions. Besides, a new concept of fairness called “effort-related fairness” is proposed.

Keywords

Citation

Gong, X., Gao, L., Chen, Y. and Wu, Z. (2021), "Effort exertion and contract design in collaborative product development with fairness concern", Journal of Modelling in Management, Vol. 16 No. 2, pp. 527-557. https://doi.org/10.1108/JM2-04-2020-0109

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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