Title: A game theoretic analysis of firms' entry mode decisions

Authors: Sang Hoo Bae; Arpita Joardar; Joseph Sarkis

Addresses: Department of Economics, Clark University, 950 Main Street, Worcester, MA 01610, USA ' Graduate School of Management, Clark University, 950 Main Street, Worcester, MA 01610, USA ' School of Business, Worcester Polytechnic Institute, 100 Institute Rd., Worcester, MA 01609, USA

Abstract: Limited research has been completed using formal modelling to investigate a firm's entry mode decisions. Addressing this issue, we formulate Dunning's eclectic model as a game theoretic problem. We develop a novel three-stage game theory model to investigate the relationships and nuances of the core constructs of the eclectic model, i.e., ownership advantage, location advantage and internalisation (OLI). We develop an equilibrium solution to identify the optimal entry decisions for firms entering new markets using a two firm-two country scenario when parameters including ownership advantage of firms, market size, production cost and country risks are varied. The results obtained provide insight for future research as well as having significant practical implications.

Keywords: market size; production cost; country risks; internationalisation; ownership advantage; location advantage; internalisation advantage; game theory; entry mode decisions; modelling; new markets.

DOI: 10.1504/IJOR.2016.076301

International Journal of Operational Research, 2016 Vol.26 No.2, pp.196 - 220

Received: 16 Apr 2014
Accepted: 25 Apr 2014
Published online: 01 May 2016 *

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