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 firm, we show that waiting is more risky for the low cost firm so that, consequently, risk dominance considerations, as in Harsanyi and Selten (1988), allow the conclusion that only the high cost firm will choose to wait. Hence, the low cost firm will emerge as the endogenous price leader.
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number
581.
Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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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.
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Raymond Deneckere & Dan Kovenock, 1988.
"Price Leadership,"
Discussion Papers
773, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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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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