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Endogenous price leadership in a duopoly: Equal products, unequal technology

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  • Krishnendu G. Dastidar
  • Dave Furth

Abstract

In the present paper we study endogenous price leadership in the context of a homogeneous product Bertrand duopoly model in which the firms have different, strictly convex cost functions. In such a framework it is well known that a simultaneous move price choice game does not have an equilibrium in pure strategies, but it has an equilibrium in mixed strategies. In the Stackelberg games with an exogenous price leader, we show that a pure strategy subgame perfect Nash equilibrium (SPNE) always exists. Although the SPNE might not be unique, the payoffs are the same across all SPNE. Finally, we analyze the issue of endogenous price leadership using the continuous version of the Robson (1990) timing game. The result is unexpected. One would expect the more efficient firm to emerge as the endogenous price leader. This is not always true. In most cases the endogenous leader is the firm with the highest “threshold” price. However, we also provide conditions under which the more efficient firm emerges as the leader. Our paper essentially complements Yano (2001), which is based on the Hamilton and Slutsky (1990) framework.

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  • Krishnendu G. Dastidar & Dave Furth, 2005. "Endogenous price leadership in a duopoly: Equal products, unequal technology," International Journal of Economic Theory, The International Society for Economic Theory, vol. 1(3), pages 189-210, September.
    • Handle: RePEc:bla:ijethy:v:1:y:2005:i:3:p:189-210
    DOI: 10.1111/j.1742-7363.2005.00012.x
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    Cited by:

    1. Attila Tasnádi, 2016. "Endogenous timing of moves in Bertrand–Edgeworth triopolies," International Journal of Economic Theory, The International Society for Economic Theory, vol. 12(4), pages 317-334, December.
    2. Daisuke Hirata & Toshihiro Matsumura, 2011. "Price leadership in a homogeneous product market," Journal of Economics, Springer, vol. 104(3), pages 199-217, November.
    3. Sumit Sarkar, 2005. "Patent Licensing By A Standard Auction In The Presence Of Network Externality," Manchester School, University of Manchester, vol. 73(2), pages 228-245, March.
    4. José Luis Ferreira & Roberts Waddle, 2010. "Strategic profit sharing between firms," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(4), pages 341-354, December.
    5. Quan-tao Zhu & Xin-wang Wu & Laixiang Sun, 2014. "A generalized framework for endogenous timing in duopoly games and an application to price-quantity competition," Journal of Economics, Springer, vol. 112(2), pages 137-164, June.
    6. Takashi Komatsubara, 2008. "Equilibrium Selection In The Yano Model Of Price Leadership," Pacific Economic Review, Wiley Blackwell, vol. 13(5), pages 649-655, December.
    7. Rui Ota & Hiroshi Fujiu, 2021. "Price Competition and Setup Cost," Mathematics, MDPI, vol. 9(3), pages 1-15, February.
    8. Toshihiro Matsumura & Akira Ogawa, 2014. "Corporate Social Responsibility or Payoff Asymmetry? A Study of an Endogenous Timing Game," Southern Economic Journal, John Wiley & Sons, vol. 81(2), pages 457-473, October.

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