Integrating efforts for product development and market penetration

Demirci E. Z., Erkip N.

European Journal of Operational Research, vol.312, no.3, pp.927-937, 2024 (SCI-Expanded) identifier

  • Publication Type: Article / Article
  • Volume: 312 Issue: 3
  • Publication Date: 2024
  • Doi Number: 10.1016/j.ejor.2023.07.017
  • Journal Name: European Journal of Operational Research
  • Journal Indexes: Science Citation Index Expanded (SCI-EXPANDED), Scopus, International Bibliography of Social Sciences, ABI/INFORM, Applied Science & Technology Source, Business Source Elite, Business Source Premier, Compendex, Computer & Applied Sciences, EconLit, INSPEC, Public Affairs Index, zbMATH, Civil Engineering Abstracts
  • Page Numbers: pp.927-937
  • Keywords: Budget allocation, Game theory, New product development, Product generations, Supply chain management
  • TED University Affiliated: Yes


In this paper, we build a decision model to explore an innovative firm's budget allocation problem, which needs to be solved for each successive generation of a product. The firm introduces the product to the market through a distributor while aiming to maximize the market potential. This goal can be achieved by investing in R&D and increasing availability using subsidies registered to the distributor. We analyze the problem using a game theoretical model and provide a guideline for the funding strategy. We show that the optimal budget allocation decision is characterized by two budget thresholds and a threshold on the cost efficiency of R&D. We identify and analyze the effects of two significant parameters, total available budget and efficiency level of R&D, on the optimal solution. In addition, we assess the model's applicability by examining the expected excess budget requirement and the distributor's expected profit. We provide valuable managerial insights on when and how to prioritize the two components of the budget.