Budget or Target: The Choice between Input and Output Strategies

40 Pages Posted: 25 Feb 2002

See all articles by Nolan H. Miller

Nolan H. Miller

University of Illinois at Urbana-Champaign

Amit Pazgal

Rice University

Date Written: January 2002

Abstract

In many competitive environments, players need to commit either to a specific goal they will reach at any cost or to the resources they are willing to spend in pursuit of that goal. We model this situation as a two-stage game where players may compete either by setting input and letting their output follow from the environment ("leading input"), or by setting output and letting the input levels required to support the output targets follow ("leading output"). For either player, we show that leading inputs (outputs) dominates leading outputs (inputs) when his output is increasing (decreasing) in the other player's input. Thus, these conditions uniquely determine whether each player will adopt inputs or outputs as leading in the subgame perfect equilibrium of the two-stage game. The results are extended to Stackleberg-style games, and applications are drawn from the arenas of foreign policy, negotiation, research and development, and corporate strategy.

Keywords: Economic Theory, Game Theory, Industrial Organization, Strategy, Strategic Variable

JEL Classification: C7, D0, L1, L2

Suggested Citation

Miller, Nolan and Pazgal, Amit I., Budget or Target: The Choice between Input and Output Strategies (January 2002). Available at SSRN: https://ssrn.com/abstract=300242 or http://dx.doi.org/10.2139/ssrn.300242

Nolan Miller (Contact Author)

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
1-217-244-2847 (Phone)

HOME PAGE: http://www.business.illinois.edu/nmiller

Amit I. Pazgal

Rice University ( email )

6100 South Main Street
Houston, TX 77005-1892
United States

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