Second-mover advantage and price leadership in Bertrand duopoly

R. Amir, A. Stepanova

Research output: Contribution to journalArticle

97 Citations (Scopus)

Abstract

We consider the issue of first- versus second-mover advantage in differentiated-product Bertrand duopoly with general demand and asymmetric linear costs. We generalize existing results for all possible combinations where prices are either strategic substitutes and/or complements, dispensing with common extraneous and restrictive assumptions. We show that a firm with a sufficiently large cost lead over its rival has a first-mover advantage. For the linear version of the model, we invoke a natural endogenous timing scheme coupled with equilibrium selection according to risk dominance. The analysis yields, as the unique equilibrium outcome, sequential play with the low-cost firm as leader.

Original languageEnglish
Pages (from-to)1-20
Number of pages20
JournalGames and Economic Behavior
Volume55
Issue number1
Early online date15 Aug 2005
DOIs
Publication statusPublished - Apr 2006
Externally publishedYes

Keywords

  • Price competition
  • Endogenous timing
  • First/second-mover advantage
  • Risk dominance

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