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Second-mover advantage and price leadership in Bertrand duopoly

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  • AMIR, Rabah
  • STEPANOVA, Anna

Abstract

We consider the issue of first versus second-mover advantage in differentiated-product Bertrand duopoly with general demand and asymmetric linear costs. We generalize existing results for all possible combinations where prices are either strategic substitutes and/or complements, dispensing with common extraneous assumptions. We show that a firmwith a sufficiently large cost lead over its rival has a first mover advantage. For the linear version of the model, we invoke a naturalendogenous timing scheme coupled with equilibrium selection according to risk-dominance. This yields sequential play with the low-cost firm as leader as the unique equilibrium outcome.

Suggested Citation

  • AMIR, Rabah & STEPANOVA, Anna, 2004. "Second-mover advantage and price leadership in Bertrand duopoly," LIDAM Discussion Papers CORE 2004037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2004037
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    More about this item

    Keywords

    price competition; endogenous timing; first/second-mover advantage; risk dominance;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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