The players will want to group their attacks together to maximize their early damage, hoping to knock out one or more opponents before they get to act. The monsters will want to group their attacks together to maximize their actual damage -- either both going first, or, alternatively at the end, so they can choose to double up their actions to attack again in the new round before the players do. Here are the possible patterns:
M1, M2, P1, P2, P3
P1, P2, P3, M1, M2
P1, M1, P2, M2, P3
Without too much reflection, one can realize that the first and second options are best for the monsters. In the first case, they get to act before the players do. Thus, they have the opportunity to defeat some characters before those characters get to act themselves. Their situation is even better in the second situation, assuming that they survive the player onslaught with enough of them to make an effective counterattack by doubling up their initiative. In my example from B1, if the living statues survive until the end (which given their resistances are very likely to), they can then execute up to eight consecutive attacks as opposed to a maximum of four consecutive attacks otherwise.
For the players, the second or third results are best. Ideally, if they can eliminate one or both creatures before they can act for themselves, that is best. But if not, the third strategy is their optimal play to avoid the threat of their opponent being able to double up initiative and act twice in rapid succession. What it becomes is a matter of accurately assessing the balance of risks involved in both scenarios.
You can add more characters or monsters to the mix, but from an analysis viewpoint they are just special cases of the three cases outlined above. (What can complicate matters, however, is that there are player and monster abilities that are written in terms of the effect lasting until the start or end of their move. What it does give is the characters some agency in terms of determining how long these effects last, based on the choices made about the order in which characters and monsters act.)
Dynamic Initiative also eliminates the surprise round per se. Additionally, holding your action becomes largely irrelevant (at least in terms of your initiative within the party). These can be simulated by choices made by the players or the DM, rather than invoke an entirely new and different mechanic.
RULE CHANGE FOR ALERT FEAT
Here is an example of when and how I had to change a Feat to make it compatible with my House Rule. Note that I could have simply nerfed the feat or eliminated. But I chose to instead augment the feat instead to make it compatible to the rule change.
ALERT
Origin FeatInitiative Proficiency. When you roll Initiative, you can add your Proficiency Bonus to the roll.
Initiative Swap. You may swap your Initiative with any ally. Alternatively, you can spend 1 Inspiration to swap Initiative with an opponent.
One aspect about this rule change I really like is how it creates incentive for players to use their Heroic Inspiration. It becomes something of an "I Win" option. Which I'm totally fine with.
The trade-off is that it may become a potentially wasted feat slot, if more than one character in the party has it. But since there will be times when it is the less optimal players who make the initiative check, it can still prove useful to have more than one character who has it. (Your mileage may vary.)
--LM

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