The Context
In spring of 2011, Apple and Samsung filed more than 50 patent lawsuits against each other across roughly ten countries — beginning with Apple's suit of April 2011, in which it eventually sought over $2.5 billion in US damages alone. In the same period, Samsung was Apple's largest supplier of display panels and memory chips — components going directly into the iPhone Apple claimed Samsung had copied.
The supply relationship was worth approximately $7–8 billion annually to Samsung. It ran at full capacity throughout the three years the legal war escalated.
The Game: Building the Payoff Matrix
| Samsung's choice → | Apple: Litigate | Apple: Settle |
|---|---|---|
| Supply components | Samsung: 6 / Apple: 6 Revenue intact, legal cost absorbed / Supply security plus patent pressure, legal cost absorbed | Samsung: 9 / Apple: 5 Full revenue, no litigation / Supply secured, but patent pressure and deterrence surrendered |
| Restrict supply | Samsung: 2 / Apple: 2 Revenue destroyed, leverage gained / Component crisis, legal pressure | Samsung: 3 / Apple: 4 Revenue lost for legal victory / Supply alternative triggered |
Dominant strategy test: If Apple litigates, Samsung scores 6 (supply) vs 2 (restrict). If Apple settles, Samsung scores 9 vs 3. In every scenario, supplying is better for Samsung. Supply is Samsung's dominant strategy.
The Nash Equilibrium — Supply + Litigate — held for three years. Given Samsung's supply, Apple preferred litigating (6) to settling (5): the lawsuits protected its patents, its deterrence message to other rivals, and its pressure position. Neither party could unilaterally improve. The equilibrium was stable. By 2014, mounting legal costs had changed Apple's payoffs — and the companies dropped their non-US suits: equilibria move when payoffs move.
The Cross-Cultural Dimension
Samsung's ability to sustain this dual-track relationship wasn't just rational in game theory terms — it was organisationally feasible in a way most Western companies couldn't replicate.
Genuine division independence
Samsung's component division and legal division operated with separate P&Ls, separate executive hierarchies, separate performance mandates. There was no forcing mechanism that required one to contaminate the other. The "contradiction" was structurally designed away.
The cognitive dissonance problem
In most Western companies, board-level pressure would force a resolution: "are we their partner or their adversary?" The chaebol model removes that pressure entirely. This is a competitive capability, not a cultural curiosity.
How the Equilibrium Changed
By 2016–17, Apple had spent four years investing in display supply alternatives — LG, BOE, and ultimately its own silicon design capabilities. Apple's BATNA had materially improved. Samsung's payoff in the Supply + Litigate cell dropped as the leverage of "you can't build an iPhone without us" weakened. Apple began shifting display purchasing away from Samsung.
No negotiation changed this. A four-year BATNA improvement programme changed this.
If you're in an unfavourable equilibrium, arguing your way out is rarely effective. Building alternatives that change the payoffs before the conversation is almost always more reliable.
Teaching Notes
Discussion Questions
Why does Western analysis typically see this as paradoxical? What assumption does it rest on that the chaebol model eliminates?
The Nash Equilibrium here (Supply + Litigate) captures less total value than the cooperative ideal (Supply + Settle). What would have been required to reach the cooperative outcome? What commitment mechanism could have made it stable?
Apple's BATNA improvement took four years. Identify a negotiation in your organisation where a multi-year BATNA improvement programme would change the power balance — and map what that programme would look like.
In your organisation, is there a structural separation between commercial and legal/competitive functions that would allow dual-track relationships? Should there be?
Key Concepts Illustrated
Payoff Matrix • Dominant Strategy • Nash Equilibrium • Efficiency Gap • BATNA Improvement as Pre-Game Strategy • Korean Chaebol Architecture
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