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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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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    • "The leader-follower game, also called the Stackelberg game, is proposed by Stackelberg in [17]. From the earliest one leader with one follower game to one leader with multi-followers game, multi-leaders with multi-followers game, leader-follower differential game and nonsmooth leader-follower game [18] , the leader-follower game obtains considerable development. Various algorithms for the Stackelberg game models are well studied [19] , which are also widely used in the engineering and economy in the real world. "
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    • "Such a structure provides a simple but fruitful framework to study the issue of endogenous timing and the value of action commitment. For instance, it has been successfully applied in a series of papers that study the robustness of commitment equilibria (Hurkens and Van Damme, 1996) and the endogenous emergence of a Stackelberg leader in the presence of cost asymmetries (Hurkens and Van Damme, 1999) and of price competition (Hurkens and Van Damme, 2004) in duopolies. With respect to these papers, our game presents two main di¤erences. "
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