Endogenous Stackelberg leadership

E.E.C. van Damme, J.P.M. Hurkens

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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.
Original languageEnglish
Pages (from-to)105-129
JournalGames and Economic Behavior
Volume28
Issue number1
DOIs
Publication statusPublished - 1999

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Stackelberg
Costs
Risk dominance
Two-stage game
Duopoly

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van Damme, E.E.C. ; Hurkens, J.P.M. / Endogenous Stackelberg leadership. In: Games and Economic Behavior. 1999 ; Vol. 28, No. 1. pp. 105-129.
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Endogenous Stackelberg leadership. / van Damme, E.E.C.; Hurkens, J.P.M.

In: Games and Economic Behavior, Vol. 28, No. 1, 1999, p. 105-129.

Research output: Contribution to journalArticleScientificpeer-review

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AB - 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.

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