IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Endogenous Price Leadership - A Theoretical and Experimental Analysis

Listed author(s):
  • Werner Güth

    ()

    (Max Planck Institute of Economics, Strategic Interaction Group)

  • Kerstin Pull

    ()

    (University of Tübingen)

  • Manfred Stadler

    ()

    (University of Tübingen)

  • Alexandra Zaby

    ()

    (University of Tübingen)

We present a model of price leadership on homogeneous product markets where the price leader is selected endogenously. The price leader sets and guarantees a sales price to which followers can adjust according to their individual supply functions. The price leader then clears the market by serving the residual demand. Firms with different marginal costs would induce different prices if they were price leaders. Somewhat counter-intuitively, lower marginal costs of the leader imply higher prices. We compare two mechanisms to determine the price leader in a between-subjects design, majority voting and competitive bidding. The experimental data of later rounds support our theoretical finding that experienced price leaders with lower marginal costs choose higher prices. In the majority voting treatment, participants with higher marginal costs more often establish the lowest cost competitor as price leader in order to induce a higher sales price.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://pubdb.wiwi.uni-jena.de/pdf/wp_2013_039.pdf
Download Restriction: no

Paper provided by Friedrich-Schiller-University Jena in its series Jena Economic Research Papers with number 2013-039.

as
in new window

Length:
Date of creation: 20 Sep 2013
Handle: RePEc:jrp:jrpwrp:2013-039
Contact details of provider: Postal:
Carl-Zeiss-Strasse 3, 07743 JENA

Phone: +049 3641/ 9 43000
Fax: +049 3641/ 9 43000
Web page: http://www.jenecon.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window

  1. Johnson, Eric J. & Camerer, Colin & Sen, Sankar & Rymon, Talia, 2002. "Detecting Failures of Backward Induction: Monitoring Information Search in Sequential Bargaining," Journal of Economic Theory, Elsevier, vol. 104(1), pages 16-47, May.
  2. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
  3. Raymond J. Deneckere & Dan Kovenock, 1992. "Price Leadership," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 143-162.
    • Raymond Deneckere & Dan Kovenock, 1988. "Price Leadership," Discussion Papers 773, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  5. Canoy, Marcel, 1996. "Product Differentiation in a Bertrand-Edgeworth Duopoly," Journal of Economic Theory, Elsevier, vol. 70(1), pages 158-179, July.
  6. Eric van Damme & Sjaak Hurkens, 1998. "Endogenous price leadership," Economics Working Papers 289, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Radner, Roy, 1980. "Collusive behavior in noncooperative epsilon-equilibria of oligopolies with long but finite lives," Journal of Economic Theory, Elsevier, vol. 22(2), pages 136-154, April.
  8. van Damme, Eric & Hurkens, Sjaak, 1999. "Endogenous Stackelberg Leadership," Games and Economic Behavior, Elsevier, vol. 28(1), pages 105-129, July.
  9. Ono, Yoshiyasu, 1982. "Price Leadership: A Theoretical Analysis," Economica, London School of Economics and Political Science, vol. 49(193), pages 11-20, February.
  10. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  11. Binmore, K & Shaked, A & Sutton, J, 1985. "Testing Noncooperative Bargaining Theory: A Preliminary Study," American Economic Review, American Economic Association, vol. 75(5), pages 1178-1180, December.
  12. Deneckere, R. & Kovenock, D. & Lee, R.E., 1988. "A Model of Price Leadership Based on Consumer Loyalty," Purdue University Economics Working Papers 947, Purdue University, Department of Economics.
  13. Dave Furth & Dan Kovenock, 1993. "Price leadership in a duopoly with capacity constraints and product differentiation," Journal of Economics, Springer, vol. 57(1), pages 1-35, February.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:jrp:jrpwrp:2013-039. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Markus Pasche)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.