Market Entry Game Application in e-Commerce

Abstract

Decision-making of market entry and incumbents defense is one of the most important issues in business activities as well as the research hotspot in academic community. This paper adopts game theory to study market-entry decisions of e-retailers in e-marketplace environment. All e-retailers are classified into two categories: one belongs to "giants" who have a great quantity of investments and aim to earn large profits. Another belongs to "dwarfs" who invest not so much and are less eager to make profit. To study the different characters between them and make entry decision in virtual business world, an e-commerce market entry game model is proposed. Using this model, a simulation of market entry decision is formed and a game tree is drawn to analyze the equilibrium. In addition to pure strategy equilibriums, the mixed strategy equilibriums are also analyzed to explore the probability of entrance into the market. Finally, through quantitative analyses, the proposed model demonstrates effective application for e-commerce context and meaningful advice for entrants to make entry or exit decision.