Leader, Follower: Strategic Investments with Asymmetric Spillovers

20 Pages Posted: 2 Feb 2006

See all articles by Jan Vandekerckhove

Jan Vandekerckhove

KU Leuven - Faculty of Business and Economics (FEB)

Raymond De Bondt

Catholic University of Leuven (KUL)

Date Written: December 15, 2005

Abstract

This paper analyzes the strategic incentives of first and second movers in sequential investment games with Stackelberg competition and price leadership on the output market. The study shows that the follower can invest more than the leader when the outgoing spillover from the leader to the follower is sufficiently high, taking into account the outgoing spillover of the follower. This result tends to apply in quantity and price settings. It is also shown that when externalities have opposite signs, the firm with the lowest outgoing spillover is investing most. However, with externalities that have the same sign, the asymmetry of spillovers determines who invests most. A beginning is made with the investigation of the robustness of the tendencies reported.

Suggested Citation

Vandekerckhove, Jan and De Bondt, Raymond, Leader, Follower: Strategic Investments with Asymmetric Spillovers (December 15, 2005). Available at SSRN: https://ssrn.com/abstract=880010 or http://dx.doi.org/10.2139/ssrn.880010

Jan Vandekerckhove (Contact Author)

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Raymond De Bondt

Catholic University of Leuven (KUL) ( email )

Oude Markt 13
Leuven, Vlaams-Brabant
Belgium

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