This paper analyzes the effect of demand uncertainty in a two-stage duopoly model where firms first choose capacity then price, and shows that the equilibrium is sensitive to the decision structure of the model. If both the capacity choice and the price choice are made simultaneously, no pure strategy equilibrium exists. If prices are chosen sequentially, the pricing stage has two pure strategy equilibria, but only for one of these does a pure strategy equilibrium of the full game exist. Finally, if both capacities and prices are chosen sequentially, a pure strategy equilibrium with strong first mover advantages exists.
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
89-09.
Length: 23 pages Date of creation: Mar 1989 Date of revision: Publication status: Published in: Journal of Economics/Zeitschrift für Nationalokonomie, 1990, 51(2) pp 121-144 Handle: RePEc:kud:kuiedp:8909
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Deneckere, Raymond J & Kovenock, Dan, 1992.
"Price Leadership,"
Review of Economic Studies,
Blackwell Publishing, vol. 59(1), pages 143-62, January.
[Downloadable!] (restricted)
Other versions:
Raymond Deneckere & Dan Kovenock, 1988.
"Price Leadership,"
Discussion Papers
773, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Gal-Or, Esther, 1985.
"First Mover and Second Mover Advantages,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 649-53, October.
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