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Endogenous price leadership
van Damme, Eric; Hurkens, Sjaak
Universitat Pompeu Fabra. Departament d'Economia i Empresa
We consider a linear price setting duopoly game with di®erentiatedproducts and determine endogenously which of the players will lead andwhich 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 towait. Hence, the low cost firm will emerge as the endogenous price leader.
2005-09-15
Microeconomics
price leadership
endogenous timing
risk dominance
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