Second-mover advantage and price leadership in Bertrand duopoly [An article from: Games and Economic Behavior]

This digital document is a journal article from Games and Economic Behavior, published by Elsevier in 2006. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
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.