Partial commitment in an endogenous timing duopoly
journal contributionposted on 2019-01-10, 10:07 authored by Ilkka Leppanen
A duopoly game with timing announcements endogenizes the sequence of commitments. In duopolistic price competition, endogenous moves lead to a coordination problem with two non-Pareto ranked subgame perfect equilibria (SPEs). In these SPEs both firms prefer followership to leadership. We suggest that a unique SPE can be found if firms use partial commitments to their timing announcements. Using partial commitments, the firms first announce the timing of moves but reserve the option to deviate from this announcement and pay a deviation cost. We show that given a sufficient asymmetry in stochastic production technologies, there exists a unique SPE with sequential moves if the deviation costs are sufficiently different or if a common deviation cost belongs to a suitable interval. We also discuss the information sharing implications of the results and find that information is not shared at the unique SPE.
- Business and Economics
Published inAnnals of Operations Research
Pages783 - 799
CitationLEPPANEN, I., 2019. Partial commitment in an endogenous timing duopoly. Annals of Operations Research, 287, pp.783-799
PublisherSpringer (part of Springer Nature) © The Author(s)
- VoR (Version of Record)
Publisher statementThis work is made available according to the conditions of the Creative Commons Attribution 4.0 International (CC BY 4.0) licence. Full details of this licence are available at: http://creativecommons.org/licenses/by/4.0/
NotesThis article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.