Endogenous Price Leadership

Tilburg University CentER Economics and Business Working Paper No. 581

Posted: 18 Sep 2002

See all articles by Eric van Damme

Eric van Damme

TILEC and CentER, Tilburg University

Sjaak Hurkens

Institute for Economic Analysis-CSIC; Barcelona GSE


We consider a linear price setting duopoly game with differentiated 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 Classification: C72, D43

Suggested Citation

van Damme, Eric E.C. and Hurkens, J.P.M. (Sjaak), Endogenous Price Leadership. Tilburg University CentER Economics and Business Working Paper No. 581, Available at SSRN: https://ssrn.com/abstract=312639

Eric E.C. Van Damme (Contact Author)

TILEC and CentER, Tilburg University ( email )

P.O. Box 90153
Tilburg, 5000 LE
+31 13 466 3045 (Phone)
+31 13 466 3066 (Fax)

J.P.M. (Sjaak) Hurkens

Institute for Economic Analysis-CSIC

campus UAB
Bellaterra, 08193

Barcelona GSE ( email )

(34-93) 5806612 (Phone)
(34-93) 5801452 (Fax)

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