Endogenous price leadership

Abstract

We consider a linear price setting duopoly game with di erentiated products and determine endogenously which of the players will lead and which will follow. While the follower role is most attractive for each rm, we show that waiting is more risky for the low cost rm so that, consequently, risk dominance considerations, as in Harsanyi and Selten 1988, allow the conclusion that only the high cost rm will choose to wait. Hence, the low cost rm will emerge as the endogenous price leader. JEL Classi nation Numbers: C72, D43.

Endogenous timing in duopoly: experimental evidence

“…This literature started with Saloner (1987), Hamilton and Slutsky (1990), and Robson (1990) and includes recent contributions by Amir and Grilo (1999), Matsumura (2002), Normann (2002) and van Damme and Hurkens (2004). The basic questions these models try to answer is simple but signi…-cant.…”

Cost of delay and endogenous price leadership

“…Among these, Van Damme and Hurkens (1998) show that an equilibrium refinement (risk dominance) will pick the low-cost firm as the price leader no matter how similar the firms might be, as long as they are not identical. In and , differences in capacity constraints and brand loyalty can generate an endogenous price leader as a result of a pure-strategy equilibrium.…”

Second-mover advantage and price leadership in Bertrand duopoly

“…Analysing the same price game but relying on the second endogenous timing scheme -with action commitment -of Hamilton and Slutsky (1990) and risk-dominance as a selection concept, van Damme and Hurkens (1998) show that the same sequential outcome prevails. While the economic interpretation and motivation of the two results are the same, the attending analysis is quite different, due to the a priori unrelated timing schemes used.…”