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How Risk Disciplines Pre-commitment

Author

Listed:
  • Christophe Caron

  • Thierry Lafay

    (UP1 UFR06 - Université Paris 1 Panthéon-Sorbonne - UFR Gestion & économie d'entreprise - UP1 - Université Paris 1 Panthéon-Sorbonne)

Abstract

This paper studies the entry strategies of firms on risky markets. We focus on markets where demand is affine and cost is linear, moreover, the demand includes a normally distributed random variable. In such a model, we show that the leader's strategy changes with the level of market risk even when firms are risk neutral. Therefore, the availability of future information for a Stackelberg follower has a feedback effect on the leader's strategy. We also show that compared with traditional markets with no risk, the basic trade-off between flexibility and pre-commitment is only slightly changed in the qualitative game where firms are free to choose when to enter the market.

Suggested Citation

  • Christophe Caron & Thierry Lafay, 2008. "How Risk Disciplines Pre-commitment," Post-Print hal-00825882, HAL.
    • Handle: RePEc:hal:journl:hal-00825882
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    Cited by:

    1. Attila Tasnádi, 2010. "Quantity-setting games with a dominant firm," Journal of Economics, Springer, vol. 99(3), pages 251-266, April.
    2. Thierry Lafay, 2011. "A Competitive Duopoly where Information Spillovers can be Mutually Advantageous," Recherches économiques de Louvain, De Boeck Université, vol. 77(1), pages 79-100.

    More about this item

    Keywords

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    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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