Commitment, First-Mover-, and Second-Mover Advantage

29 Pages Posted: 27 Mar 2007

See all articles by Michael Kopel

Michael Kopel

University of Graz

Clemens Löffler

University of Applied Sciences for Management and Communication (FHWien der WKW)

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

Kopel, Michael and Löffler, Clemens, Commitment, First-Mover-, and Second-Mover Advantage (July 2, 2007). Available at SSRN: https://ssrn.com/abstract=975024 or http://dx.doi.org/10.2139/ssrn.975024

Michael Kopel (Contact Author)

University of Graz ( email )

Universitaetsstrasse 15 / FE
A-8010 Graz, 8010
Austria

Clemens Löffler

University of Applied Sciences for Management and Communication (FHWien der WKW) ( email )

Währinger Gürtel 97
Vienna, 1180
Austria

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