We consider a linear quantity setting duopoly game and analyze
which of the players will commit when both players have the possibility to
do so. To that end, we study a 2-stage game in which each player can
either commit to a quantity in stage 1 or wait till stage 2. We show that
committing is more risky for the high cost firm and that, consequently,
risk dominance considerations, as in Harsanyi and Selten (1988), allow
the conclusion that only the low cost firm will choose to commit.
Hence, the ...
We consider a linear quantity setting duopoly game and analyze
which of the players will commit when both players have the possibility to
do so. To that end, we study a 2-stage game in which each player can
either commit to a quantity in stage 1 or wait till stage 2. We show that
committing is more risky for the high cost firm and that, consequently,
risk dominance considerations, as in Harsanyi and Selten (1988), allow
the conclusion that only the low cost firm will choose to commit.
Hence, the low cost firm will emerge as the endogenous Stackelberg leader.
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