Game Theoretic Modeling of User Innovation and Venture M&A Processes

Abstract

User innovation and venture M&A mechanisms enable value co-creation that utilizes knowledge and skill of individuals through the interaction between stakeholders. Given that the applicable methods for external innovation continue to diversify and economic efficiency becomes a relevant criterion of innovation process performance, they need to fit to the market environment and business model in order to be effective in value creation. But there is not enough analysis that takes the factors such as product characteristics and degree of consumer value diversity into account, and implication regarding the correspondence relationship between them and the adequate form of value creation process is scarce. This study proposes a game theoretic model that investigates the fitness of external R&D methods to the environmental factors. The model is analyzed by a numerical simulation, and how the environmental parameters such as product price, quality and innovation cost affect the relative social surplus of the proposed models is systematically examined. The condition of parameters in which each mechanism induces a relatively superior performance in terms of production quantity and social surplus is computed.