New entry is among the most common reasons why a cycle of competitive actions and reactions gets started among similar competitors.

Question

Quizplus · Accepted Answer

New entry into markets, whether by start-ups or by incumbent firms, nearly always threatens existing competitors. This is true in part because nearly every market need is already being met, either directly or indirectly, by existing firms. As a result, the competitive actions of a new entrant are very likely to provoke a competitive response from companies that feel threatened. This, in turn, is likely to evoke a reaction to the response.

New Entry Is Among the Most Common Reasons Why a Cycle