Second-Mover Advantage and Price Leadership in Bertrand Oligopoly

CORE Discussion Paper No. 2004/37

24 Pages Posted: 4 Mar 2007

See all articles by Rabah Amir

Rabah Amir

University of Arizona - Department of Economics; University of Arizona

Anna Stepanova

University of Southern Denmark

Date Written: June 2004

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 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. This yields sequential play with the low-cost firm as leader as the unique equilibrium outcome.

Keywords: price competition, endogenous timing, first/second-mover advantage, risk dominance

JEL Classification: L13, C72, D43

Suggested Citation

Amir, Rabah and Stepanova, Anna, Second-Mover Advantage and Price Leadership in Bertrand Oligopoly (June 2004). Available at SSRN: https://ssrn.com/abstract=967639 or http://dx.doi.org/10.2139/ssrn.967639

Rabah Amir (Contact Author)

University of Arizona - Department of Economics ( email )

Tucson, AZ 85721
United States

University of Arizona ( email )

Department of History
Tucson, AZ 85721
United States

Anna Stepanova

University of Southern Denmark ( email )

Campusvej 55
DK-5230 Odense, 5000
Denmark

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