Supplier-manufacturer collaboration on new product development

In this chapter, we develop a dynamic model of collaboration between a manufacturer and its supplier, where the fundamental issue is, for each player, how to allocate own resources between improving an existing product and developing a new one. We study the optimal time path of effort allocation for each player in a noncooperative setting, and then look into the cooperative setting. We finally conduct a numerical analysis and observe how the optimal dynamics of key variables change as parameters of the game vary.