Second-Mover Advantage and Price Leadership in Bertrand Oligopoly
CORE Discussion Paper No. 2004/37
24 Pages Posted: 4 Mar 2007
Date Written: June 2004
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 firm with a sufficiently large cost lead over its rival has a first mover advantage. For the linear version of the model, we invoke a natural endogenous 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.
Keywords: price competition, endogenous timing, first/second-mover advantage, risk dominance
JEL Classification: L13, C72, D43
Suggested Citation: Suggested Citation
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