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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Volume (Year): 59 (1992)
Issue (Month): 1 (January)
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- Osborne, Martin J. & Pitchik, Carolyn, 1983.
"Price Competition in a Capacity-Constrained Duopoly,"
83-08, C.V. Starr Center for Applied Economics, New York University.
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- Raymond Deneckere & Dan Kovenock, 1994. "Capacity-Constrained Price Competition when Unit Costs Differ," Industrial Organization 9411001, EconWPA, revised 15 Nov 1994.
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- Steve Dowrick, 1986. "von Stackelberg and Cournot Duopoly: Choosing Roles," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 251-260, Summer.
- Davidson, Carl & Deneckere, Raymond J, 1990.
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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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Cowles Foundation Discussion Papers
287, Cowles Foundation for Research in Economics, Yale University.
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