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Demand-Induced Endogenous Price Leadership

Author

Listed:
  • RABAH AMIR

    (Department of Economics, University of Southern Denmark, Denmark;
    C.I.E., Department of Economics, University of Copenhagen, Denmark)

  • ISABEL GRILO

    (CORE, 34 voie du Roman Pays, 1348 Louvain-la-neuve, Belgium;
    GREMARS, Université de Lille 3, France)

  • JIM JIN

    (Department of Economics, The Queen's University of Belfast, Belfast, BT7 1NN, Northern Ireland, UK)

Abstract

This paper provides general conditions on the direct demand functions in a Bertrand duopoly with differentiated substitute products and constant marginal costs, that allow an unambiguous ranking of firms' equilibrium payoffs between sequential play (with both order of moves) on the one hand, and simultaneous play on the other. The main results are that (i) when prices are strategic complements, both firms prefer sequential moves (with either order) to simultaneous moves, (ii) when prices are strategic substitutes, both firms prefer simultaneous moves to moving second in sequential play, and (iii) in the mixed strategic substitute/complement case, one firm is as in (i) and the other as in (ii). Thus, sequential moves would plausibly endogenously emerge in cases (i) and (iii), with one specified leader in the latter case. The analysis relies crucially on the theory of supermodular games, and is conducted at a high level of generality, dispensing with concavity-type assumptions, and taking into account both the issues of existence and possible non-uniqueness of the different equilibria involved.

Suggested Citation

  • Rabah Amir & Isabel Grilo & Jim Jin, 1999. "Demand-Induced Endogenous Price Leadership," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 1(03n04), pages 219-240.
    • Handle: RePEc:wsi:igtrxx:v:01:y:1999:i:03n04:n:s0219198999000165
    DOI: 10.1142/S0219198999000165
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    Citations

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    Cited by:

    1. Amir, Rabah & Stepanova, Anna, 2006. "Second-mover advantage and price leadership in Bertrand duopoly," Games and Economic Behavior, Elsevier, vol. 55(1), pages 1-20, April.
    2. Marco Marini & Giorgio Rodano, 2012. "Sequential vs Collusive Payoffs in Symmetric Duopoly Games," DIAG Technical Reports 2012-06, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    3. Marco Marini & Giorgio Rodano, 2011. "Lead, Follow or Cooperate? Endogenous Timing & Cooperation in Symmetric Duopoly Games," Working Papers 1112, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2011.
    4. Marchese Carla & Ramello Giovanni B., 2011. "In the Beginning Was the Word. Now is the Copyright," Review of Law & Economics, De Gruyter, vol. 7(1), pages 271-289, October.
    5. KNAUFF, Malgorzata, 2006. "Market transparency and Bertrand competition," LIDAM Discussion Papers CORE 2006037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Yang, Xiao-hua & Luo, Yun-feng & Wu, Hui-qiu, 2009. "On the comparison of price and quantity competition under endogenous timing," Research in Economics, Elsevier, vol. 63(1), pages 55-61, March.
    7. von Stengel, Bernhard, 2010. "Follower payoffs in symmetric duopoly games," Games and Economic Behavior, Elsevier, vol. 69(2), pages 512-516, July.

    More about this item

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C0 - Mathematical and Quantitative Methods - - General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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