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Price Leadership

  • Deneckere, Raymond J
  • Kovenock, Dan

This paper analyzes duopolistic price-leadership games in which firms have capacity constraints. The authors show that when capacities are in the range where the simultaneous-move price-setting game (with efficiently rationed demand) yields a mixed-strategy solution the large firm is indifferent between being a leader, a follower, or moving simultaneously. The small firm, while indifferent between being a leader and moving simultaneously, strictly prefers to be a follower. This motivates the discussion of games of timing with ex post inflexible prices in which the large firm becomes an endogenously determined price leader. The authors, thus, provide a game-theoretic model of dominant-firm price leadership. Copyright 1992 by The Review of Economic Studies Limited.

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Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 59 (1992)
Issue (Month): 1 (January)
Pages: 143-62

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Handle: RePEc:bla:restud:v:59:y:1992:i:1:p:143-62
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  1. Brock, William A & Scheinkman, Jose A, 1985. "Price Setting Supergames with Capacity Constraints," Review of Economic Studies, Wiley Blackwell, vol. 52(3), pages 371-82, July.
  2. Ono, Yoshiyasu, 1978. "The Equilibrium of Duopoly in a Market of Homogeneous Goods," Economica, London School of Economics and Political Science, vol. 45(179), pages 287-95, August.
  3. Carl Davidson & Raymond Deneckere, 1984. "Excess Capacity and Collusion," Discussion Papers 675, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Raymond Deneckere & Dan Kovenock, 1994. "Capacity-Constrained Price Competition when Unit Costs Differ," Industrial Organization 9411001, EconWPA, revised 15 Nov 1994.
  5. Levitan, Richard & Shubik, Martin, 1972. "Price Duopoly and Capacity Constraints," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 111-22, February.
  6. Dixon, Huw, 1987. "Approximate Bertrand Equilibria in a Replicated Industry," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 47-62, January.
  7. Ono, Yoshiyasu, 1982. "Price Leadership: A Theoretical Analysis," Economica, London School of Economics and Political Science, vol. 49(193), pages 11-20, February.
  8. Benoit, Jean-Pierre & Krishna, Vijay, 1987. "Dynamic Duopoly: Prices and Quantities," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 23-35, January.
  9. Osborne, Martin J. & Pitchik, Carolyn, 1986. "Price competition in a capacity-constrained duopoly," Journal of Economic Theory, Elsevier, vol. 38(2), pages 238-260, April.
  10. Julio Rotemberg & Garth Saloner, 1986. "Price Leadership," Working papers 412, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Raymond Deneckere & Dan Kovenock, 1988. "Price Leadership," Discussion Papers 773, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. 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.
  13. Dixon, Huw, 1987. "The General Theory of Household and Market Contingent Demand," The Manchester School of Economic & Social Studies, University of Manchester, vol. 55(3), pages 287-304, September.
  14. Steve Dowrick, 1986. "von Stackelberg and Cournot Duopoly: Choosing Roles," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 251-260, Summer.
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