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A continuum of commitment

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  • Weber, Thomas A.

Abstract

We examine a generic three-stage game for two players with alternating moves, where the first player can choose the level of adjustment cost to be paid in the last period to modify the action she announced in the first period. In the resulting continuum of commitment options, convexifying the choice between first-mover and second-mover advantage in pure strategies, we characterize when an intermediate adjustment-cost level is chosen in equilibrium. We show that the wastefulness of the adjustment cost may be in the players’ best interest, improving both of their individual net payoffs over making any fraction of the adjustment cost a side-payment from the first to the second player.

Suggested Citation

  • Weber, Thomas A., 2014. "A continuum of commitment," Economics Letters, Elsevier, vol. 124(1), pages 67-73.
    • Handle: RePEc:eee:ecolet:v:124:y:2014:i:1:p:67-73
    DOI: 10.1016/j.econlet.2014.04.013
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    References listed on IDEAS

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    Cited by:

    1. Thomas A. Weber, 2016. "A robust resolution of Newcomb’s paradox," Theory and Decision, Springer, vol. 81(3), pages 339-356, September.
    2. Ilkka Leppänen, 2020. "Partial commitment in an endogenous timing duopoly," Annals of Operations Research, Springer, vol. 287(2), pages 783-799, April.

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    More about this item

    Keywords

    Adjustment cost; Endogenous commitment; First-mover advantage; Regulatory commitment; Second-mover advantage; Time consistency;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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