Number of Competitors and Dynamic Stability of Competition: Five is a Crowd in the Market Share Attraction Model

22 Pages Posted: 16 Mar 2001

See all articles by Paul Farris

Paul Farris

University of Virginia - Darden School of Business

Phillip E. Pfeifer

University of Virginia - Darden School of Business

David Reibstein

Marketing Science Institute; University of Pennsylvania - Marketing Department

Erjen van Nierop

Carnegie Mellon University - David A. Tepper School of Business; Erasmus Research Institute of Management (ERIM); Tinbergen Institute

Date Written: January 2001

Abstract

As economists have increasingly accepted the notion that non-equilibrium behavior may be a reflection of the "real world," interest has grown in modeling the emergence of turbulence as well as equilibrium. It is well established that competitive actions and the associated reactions can destabilize a previously stable market. Earlier work by two of the authors used simulation to conduct a non-equilibrium competitive analysis of a market where consumer reaction followed the market share attraction model. These simulations demonstrated that even the relatively simple competitive behavior of optimizing ones own spending levels while assuming stable competitive behavior can lead to surprising instability. The basic logic of the market share attraction model is easy to accept. Given the amount of work done to fine-tune applications of this model, we believe the logic of the model helps determine the behavior of real firms. As shown in earlier work, however, application of the logic may lead to dynamic instability when the number of competitors exceeds a threshold level of three or four. This study provides an analytical explanation for the emergence of this instability when the number of competitors exceeds three or four. This work will also extend the original model formulation to identify other conditions that may affect the existence or level of the instability thresholds.

Suggested Citation

Farris, Paul and Pfeifer, Phillip E. and Reibstein, David and van Nierop, Erjen, Number of Competitors and Dynamic Stability of Competition: Five is a Crowd in the Market Share Attraction Model (January 2001). Darden Business School Working Paper No. 01-08. Available at SSRN: https://ssrn.com/abstract=263533 or http://dx.doi.org/10.2139/ssrn.263533

Paul Farris (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-0524 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/farris.htm

Phillip E. Pfeifer

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4803 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/Pfeifer.htm

David Reibstein

Marketing Science Institute ( email )

1000 Massachusetts Ave.
Cambridge, MA 02138-5396
United States

University of Pennsylvania - Marketing Department

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

Erjen Van Nierop

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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