Game-theoretic analysis of partner selection strategies for market in chains

In this study, we provide a game-theoretic analysis to investigate an entrant firm's partner selection for offering its new product to a market, particularly to a foreign market. The entrant has either a brand advantage or technological superiority over incumbent firms. We analyze the strategic interaction between one entrant and three incumbent firms that include one major firm (or a firm offering a popular product) and two local firms (or firms offering niche products). We explore the impact of such asymmetric demand structures on the entrant's partner selection. Our equilibrium analysis indicates that forming a partnership with a firm that currently has the largest market share because of its superior product is not necessarily optimal for the entrant. When the value offered by the entrant is significantly high, it is more beneficial for the entrant to ally with the major firm, even if that firm currently has a smaller market share than the local firms because of its inferior product. We also demonstrate that when the entrant can add technological superiority to the partner's product, the entrant's optimal partner selection may change non-monotonically in the degree of this superiority. Furthermore, in response to the entrant's optimal partner selection, the relative profitability between incumbent firms can reverse discontinuously and drastically according to the degree of the value offered by the entrant.

Automated summary

This study investigates the factors that a new entrant needs to consider when selecting a partner for entering a market with a new product, providing a game-theoretic analysis. The results suggest that partnering with the major firm with the largest market share is not always the optimal choice, and for high-value entrants, allying with the major firm may be more beneficial.