Second-mover advantage and price leadership in Bertrand duopoly

We consider the issue of first- versus second-mover advantage in differentiated-product Bertrand duopoly with general demand and asymmetric linear costs. We generalize existing results for all possible combinations where prices are either strategic substitutes and/or complements, dispensing with common extraneous and restrictive assumptions. We show that a firm with a sufficiently large cost lead over its rival has a first-mover advantage. For the linear version of the model, we invoke a natural endogenous timing scheme coupled with equilibrium selection according to risk dominance. The analysis yields, as the unique equilibrium outcome, sequential play with the low-cost firm as leader.

[1]  Simon P. Anderson,et al.  Stackelberg versus Cournot oligopoly equilibrium , 1992 .

[2]  E. Gal‐Or,et al.  First Mover and Second Mover Advantages , 1985 .

[3]  Claude d'Aspremont,et al.  Stackelberg-solvable games and pre-play communication , 1980 .

[4]  Walter Garcia-Fontes,et al.  Risk dominance selects the leader. An experimental analysis , 2000 .

[5]  John D. Hey,et al.  AN EXPERIMENTAL ANALYSIS , 2004 .

[6]  X. Vives.  Nash equilibrium with strategic complementarities , 1990 .

[7]  John C. Harsanyi,et al.  Общая теория выбора равновесия в играх / A General Theory of Equilibrium Selection in Games , 1989 .

[8]  Glenn Ellison.  Learning, Local Interaction, and Coordination , 1993 .

[9]  J.P.M. Hurkens,et al.  Endogenous Stackelberg leadership , 1999 .

[10]  Donald M. Topkis,et al.  Minimizing a Submodular Function on a Lattice , 1978, Oper. Res..

[11]  R. Amir.  Endogenous Timing in Two-Player Games: A Counterexample , 1995 .

[12]  Paul R. Milgrom,et al.  Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities , 1990 .

[13]  Andrew F. Daughety,et al.  Asymmetric Information Acquisition and Behavior in Role Choice Models: An Endogenously Generated Signaling Game , 1994 .

[14]  Michel Moreaux,et al.  Being a leader or a follower: Reflections on the distribution of roles in duopoly , 1987 .

[15]  Wolfgang Leininger,et al.  More efficient rent-seeking — A Münchhausen solution , 1993 .

[16]  S. Dowrick,et al.  von Stackelberg and Cournot duopoly: choosing roles , 1986 .

[17]  Robert Forsythe,et al.  Selection Criteria in Coordination Games: Some Experimental Results , 1987 .

[18]  Ivan Pastine,et al.  Cost of delay and endogenous price leadership , 2004 .

[19]  S. Salop,et al.  Practices that (Credibly) Facilitate Oligopoly Co-ordination , 1986 .

[20]  Andrew Caplin,et al.  Aggregation and Imperfect Competition: On the Existence of Equilibrium , 1991 .

[21]  Rabah Amir,et al.  Demand-induced endogenous Price Leadership , 1999, IGTR.

[22]  Rabah Amir,et al.  Stackelberg versus Cournot Equilibrium , 1999 .

[23]  Eric van Damme,et al.  Endogenous price leadership , 1998, Games Econ. Behav..

[24]  A. Tarski.  A LATTICE-THEORETICAL FIXPOINT THEOREM AND ITS APPLICATIONS , 1955 .

[25]  Thomas E. Cooper.  Most-Favored-Customer Pricing and Tacit Collusion , 1986 .

[26]  George J. Stigler,et al.  The Kinky Oligopoly Demand Curve and Rigid Prices , 1947, Journal of Political Economy.

[27]  Joseph E. Stiglitz,et al.  New developments in the analysis of market structure : proceedings of a conference held by the International Economic Association in Ottawa, Canada , 1986 .

[28]  Ivan Pastine,et al.  On Endogenous Leadership in Price Competition , 2000 .

[29]  Jacques-François Thisse,et al.  Price competition, quality and income disparities , 1979 .

[30]  Andrew Caplin,et al.  Aggregation and Imperfect Competition , 1991 .

[31]  James W. Friedman,et al.  Oligopoly and the theory of games , 1977 .

[32]  R. Rob,et al.  Learning, Mutation, and Long Run Equilibria in Games , 1993 .

[33]  X. Vives.  Oligopoly Pricing: Old Ideas and New Tools , 1999 .

[34]  Robert W. Rosenthal,et al.  A note on robustness of equilibria with respect to commitment opportunities , 1991 .

[35]  Eric van Damme,et al.  Commitment Robust Equilibria and Endogenous Timing , 1996 .

[36]  Jonathan H. Hamilton,et al.  Endogenous timing in duopoly games: Stackelberg or cournot equilibria , 1990 .

[37]  J. Huyck,et al.  Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure , 1990 .

[38]  G. Mailath.  Endogenous Sequencing of Firm Decisions , 1993 .

[39]  Arthur J. Robson,et al.  Duopoly with Endogenous Strategic Timing: Stackelberg Regained , 1990 .

[40]  H. Stackelberg,et al.  Marktform und Gleichgewicht , 1935 .