Game-theoretic analysis of partner selection strategies for market entry in global supply 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.