Incentives to Cooperate in New Product Development

The knowledge required for decision making in a firm is distributed across various departments. In practice cross functional teams are used to integrate this distributed knowledge. Incentive schemes are of crucial importance to encourage departments to share knowledge. In this paper, we study different incentive schemes by means of a two stage model. In the first step departments have to choose between learning and sharing knowledge, in the second stage, they bargain about a new product feature. The outcome of the bargaining process in the second stage depends on the capabilities of the agents and their uncertainty about the opponent. The result of the second stage determines the agents' payoffs which in turn influence the time allocation. In a simulation study, we investigate different incentive systems and show to which extent a firm has to reward the sharing of knowledge in order to reach its overall objectives. Furthermore, we are able to derive an analytical solution for the bargaining process under uncertainty and compute Nash equilibria for a discrete set of possible actions.