Endogenous Stackelberg Leadership

CentER, Tilburg University, P.O. Box 90153, 5000 LE, Tilburg, The Netherlands
Games and Economic Behavior (Impact Factor: 0.83). 07/1999; 28(1):105-129. DOI: 10.1006/game.1998.0687
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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.

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