Commitment, First-Mover-, and Second-Mover Advantage
29 Pages Posted: 27 Mar 2007
Date Written: July 2, 2007
Abstract
In this paper we are studying the question under which circumstances a firm with a first-mover advantage may get leapfrogged by a follower. At the market stage we assume a Stackelberg structure, i.e. the leader commits to a quantity and the follower then reacts to it. It is well-known that the leader has a first-mover advantage. In our model, we additionally allow the owners of both firms to select the internal organization and the production technology before quantities are determined and produced. That is, leader and follower can additionally use two other commitment strategies alternatively or in combination: investing in (process) R&D and delegating quantity decisions to managers. Despite the symmetry of options for the two firms, we find that there is a unique equilibrium in which both firms invest in process R&D, only the follower delegates, and the follower can overcome the first-mover advantage of the quantity leader and obtain a higher profit than the leader. Although seemingly similar, our analysis reveals that there are some important differences between the two commitment devices "cost-reducing R&D" and "delegation to managers".
Keywords: Stackelberg, Second-mover advantage, Process innovation, strategic delegation
JEL Classification: L13, L2, O31
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Second-Mover Advantage and Price Leadership in Bertrand Oligopoly
By Rabah Amir and Anna Stepanova
-
Strategic Delegation and Mergers in Oligopolistic Contests
By Matthias Kräkel and Dirk Sliwka
-
By Kai A. Konrad, Steffen Huck, ...
-
Managerial Versus Entrepreneurial Firms: The Benefits of Separating Ownership and Control
-
Delegation in an R&D Game with Spillovers
By Michael Kopel and Christian Riegler
-
Optimal R&D Investment Strategies with Quantity Competition Under the Threat of Superior Entry
By Joseph Plasmans, Ruslan Lukach, ...
-
Endogenous Timing and Strategic Managerial Incentives in a Duopoly Game
By Michael Kopel and Clemens Löffler
-
Trash it or Sell it? A Strategic Analysis of the Market Introduction of Product Innovations
By Herbert Dawid, Michael Kopel, ...