Price Leadership, Spying, and Secret Price Changes: A Stackelberg Game with Imperfect Commitment

International Journal of Game Theory, 52 (2023): 775–804

Posted: 11 Feb 2019 Last revised: 6 Sep 2023

See all articles by Cuihong Fan

Cuihong Fan

Shanghai University of Finance and Economics

Byoung Jun

Korea University

Elmar G. Wolfstetter

Humboldt University of Berlin - Faculty of Economics; Korea University - College of Economics and Commerce; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 30, 2023

Abstract

We analyze price leadership in a Stackelberg game with incomplete information and imperfect commitment. Sequential play is induced by an information system, represented by a spy, that reports the price of one firm to its rival before the latter chooses its own price. However, the Stackelberg leader may secretly revise its price with some probability. Therefore, the spy's message is only an imperfect signal. This gives rise to a complex signaling problem where both sender and receiver of messages have private information and the sender has a chance to take another action with some probability. We find partially separating and pooling equilibria that satisfy equilibrium refinements such as the intuitive criterion and support collusive outcomes.

Keywords: Industrial Espionage, Price Leadership, Stackelberg Games, Collusion, Antitrust Policy, Incomplete Information

JEL Classification: L12, L13, L41, D43, D82

Suggested Citation

Fan, Cuihong and Jun, Byoung and Wolfstetter, Elmar G., Price Leadership, Spying, and Secret Price Changes: A Stackelberg Game with Imperfect Commitment (September 30, 2023). International Journal of Game Theory, 52 (2023): 775–804, Available at SSRN: https://ssrn.com/abstract=3326079 or http://dx.doi.org/10.2139/ssrn.3326079

Cuihong Fan

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Byoung Jun

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)

Elmar G. Wolfstetter (Contact Author)

Humboldt University of Berlin - Faculty of Economics ( email )

Institut für Wirtschaftstheorie I
Spandauer Strasse 1
Berlin
Germany
+49 30 2093 5652/3 (Phone)
+49 30 2093 5619 (Fax)

HOME PAGE: http://sites.google.com/view/wolfstetter/home

Korea University - College of Economics and Commerce ( email )

Anam-dong, Sungbuk-Ku
Seoul, 136-701
Korea

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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