At Nash equilibrium when new market competitions appear?

Abstract

PurposeThis paper aims to investigate the dynamics of a coordinate monopoly with established, risk-neutral firms; how these firms compete by adjusting prices; and when new competition(s) might enter the market with expectations of making more profits than any of the incumbents.Design/methodology/approachAll results are established on the intuition of systems research and the concept of Nash equilibria of game theory.FindingsEstablished results include how in a developed marketplace, risk neutrality would lead to stagnation in profits and irrational decision on pricing, and a sufficient and necessary condition under which new competition(s) would enter, although the market is coordinately monopolized.Research limitations/implicationsConclusions presented are initial results in the direction of research. More real-life-like, asymmetrical conditions need to be considered to see what variations of similar results could hold true.Practical implicationsPresented are an operational aspect on how to compete although the consequent level of profits might not change much or any at all and how some of the key issues on market entry timing are theoretically resolved.Social implicationsThis work indicates that for the minimum objective of business survival, existing firms, no matter how established, have to without any choice participate in market competition and look for new market opportunities.Originality/valueOther than the established thought-provoking results, this work is the first of its kind. It organically combines recent achievements of systems research with game theory to explore issues of marketing, market entry timing and the dynamics of business firms’ behaviors.