Paper #581
- Title:
- Endogenous price leadership
- Authors:
- Eric van Damme and Sjaak Hurkens
- Date:
- November 2001
- Abstract:
- We consider a linear price setting duopoly game with diŽerentiated products and determine endogenously which of the players will lead and which will follow. While the follower role is most attractive for each firm, we show that waiting is more risky for the low cost firm so that, consequently, risk dominance considerations, as in Harsanyi and Selten (1988), allow the conclusion that only the high cost firm will choose to wait. Hence, the low cost firm will emerge as the endogenous price leader.
- Keywords:
- Price leadership, endogenous timing, risk dominance
- JEL codes:
- C72, D43
- Area of Research:
- Microeconomics
- Published in:
- Games and Economic Behavior 47, 404-20, 2004
Download the paper in PDF format