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A Two-Stage Price-Setting Equilibrium Designed in Consideration of Goods Relevance and Strategic Relevance

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  • Ohnishi, Kazuhiro

Abstract

This paper analyses the subgame perfect Nash equilibrium of a two-stage price-setting duopoly. The demand functions are classified into four cases in terms of the goods' relevance and strategic relevance between two firms. All four cases are correlated with two opposite prior commitments that generate kinks in the reaction curve. This paper assumes that only one firm can execute the prior commitments. In the model, we find that the firm can increase its payoff with one of the prior commitments in each of the four cases. We also find that our equilibrium outcomes are different from those of Matsumura (1998) in this Journal, and that they occur at the Stackelberg point in all four cases if, and only if, the firm's reaction curves shift to the Stackelberg point as a result of the prior commitments. As a consequence, the effectiveness of strategic commitments is proved. Copyright 2000 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia

Suggested Citation

  • Ohnishi, Kazuhiro, 2000. "A Two-Stage Price-Setting Equilibrium Designed in Consideration of Goods Relevance and Strategic Relevance," Australian Economic Papers, Wiley Blackwell, vol. 39(2), pages 173-183, June.
    • Handle: RePEc:bla:ausecp:v:39:y:2000:i:2:p:173-83
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    Cited by:

    1. Kazuhiro Ohnishi, 2019. "Capacity choice in an international mixed triopoly," Working Papers e140, Tokyo Center for Economic Research.
    2. Kazuhiro Ohnishi, 2009. "Strategic Commitment and Three-Stage Games with Labour-Managed and Profit-Maximizing Firms," Finnish Economic Papers, Finnish Economic Association, vol. 22(2), pages 63-74, Autumn.
    3. Ohnishi, Kazuhiro, 2019. "Capacity choice in an international mixed triopoly," MPRA Paper 94051, University Library of Munich, Germany.

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