A stackelberg game theoretic approach to competitive product portfolio management

We are concerned with a product portfolio management problem in which a firm wants to enter a competitive market by offering new products where there are existing products belonging to a competitor. The objective of the new entrant firm is to find out an optimal product portfolio that maximizes its expected shared surplus. The market incumbent firm can react by adjusting its existing product portfolio through offering new products or closing old ones with the aim of maximizing its own expected shared surplus. We formulate a bilevel zero-one integer nonlinear programming model based on the Stackelberg leaderfollower game where the new entrant firm is the leader and the incumbent firm is the follower. In the absence of a closed-form solution, the new model is illustrated through a numerical case under different market scenarios and calculated results are compared with Nash equilibrium.