Hyper-competition, collusion, free riding or coopetition: basins of attraction when firms simultaneously compete and...

Using a dyad in a homogeneous market, facing investment decisions, we investigate simultaneous competition and cooperation behavior of firms under the effects of (a) government policies that send signals regarding incentives for different levels of competition and cooperation and (b) two different 'states of nature' for the market, i.e., one that rewards firms for building on their existing strategic path and another that rewards firms for exploring new strategies. We conceptualize the dyad and the external environment as a complex adaptive system and formulate simultaneous competition and cooperation as a dynamic duopoly game with variable demand and supply curves. Employing a simulation-based methodology, we investigate the attractors of this two-firm system. We find that in markets that reward firms for building on their existing strategic path, coopetition (sustained simultaneous competition and cooperation) is a common attractor and the system is not affected by imbalances in governmental policies. On the other hand, in markets that reward firms for exploring new strategy, competition is rare; rather, the system frequently exhibits hyper-coopetition, collusion or freeridership. Additionally, we find that the market share of firms as well as a firm's initial disposition toward competition and cooperation are important factors that affect the outcome.