Endogenous Stackelberg Leadership

CentER, Tilburg University, P.O. Box 90153, 5000 LE, Tilburg, The Netherlands; Department of Economics, Universitat Pompeu Fabra, Ramon Trias Fargas 25-27, 08005, Barcelona, Spain
Games and Economic Behavior (Impact Factor: 0.83). 07/1999; DOI: 10.1006/game.1998.0687
Source: CiteSeer

ABSTRACT We consider a linear quantity setting duopoly game and analyze which of the players will commit when both players have the possibility to do so. To that end, we study a two-stage game in which each player can either commit to a quantity in stage 1 or wait till stage 2. We show that committing is more risky for the high cost firm and that, consequently, risk dominance considerations, as in Harsanyi and Selten (1988), allow the conclusion that only the low cost firm will choose to commit. Hence, the low cost firm will emerge as the endogenous Stackelberg leader. Journal of Economic Literature Classification Numbers: C72, D43.

1 Bookmark
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: There is a growing literature that aims at endogenizing the first mover in oligopoly models. Some of these articles have shown that, when market competition is in quantities, the most effi-cient firm –i.e. the one with smallest marginal cost– will endogenously emerge as a Stackelberg leader. In this paper we show that if firms know that market leadership depends on cost struc-tures, then this affects the way in which firms invest in process R&D to decrease costs, making them more aggressive in seeking cheaper technologies. This is caused by the hyper-strategic effect that now R&D investment has, as it not only increases efficiency but changes the mode of com-petition by creating market leadership. We show that in the vast majority of the parameter space, firms invest more in R&D than when market competition is exogenously simultaneous and, in fact, R&D investments are weekly larger than in the first-best. These larger R&D investments, that lead to decreased costs of production, while beneficial for the consumers, may in some cases hurt the firms enough to actually diminish social welfare as compared to the simultaneous market competition case.
  • [Show abstract] [Hide abstract]
    ABSTRACT: A bid-offer–counteroffer mechanism is proposed to solve a fundamental two-person decision choice problem with two alternatives. It yields a unique subgame perfect equilibrium outcome, and leads to an intuitive overall solution that offers a reconciliation between egalitarianism and utilitarianism. We then investigate the axiomatic foundation of the solution. Furthermore, we compare it with several conventional strategic approaches to this setting.
    International Journal of Games Theory 01/2013; 42(2). · 0.43 Impact Factor
  • [Show abstract] [Hide abstract]
    ABSTRACT: In many industries, firms pre-order input and forward sell output prior to the actual production period. It is known that forward buying input induces a “Cournot–Stackelberg endogeneity” (both Cournot and Stackelberg outcomes may result in equilibrium) and forward selling output induces a convergence to the Bertrand solution. I analyze the generalized model where firms pre-order input and forward sell output. First, I consider oligopolists producing homogenous goods, generalize the Cournot–Stackelberg endogeneity to oligopoly, and show that it additionally includes Bertrand in the generalized model. This shows that the “mode of competition” between firms may be entirely endogenous. Second, I consider duopolies producing heterogenous goods. The set of equilibrium outcomes is characterized and shown not to contain the Bertrand solution anymore. Yet, forward sales increase welfare also in this case, notably even when goods are complements.
    International Journal of Industrial Organization 01/2012; · 0.84 Impact Factor

Full-text (3 Sources)

Available from
Jun 10, 2014