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Endogenous Stackelberg leadership. (English) Zbl 0938.91011
Summary: The authors consider a linear quantity setting duopoly game and analyze which of the players will commit when both players have the possibility to do so. To that end, they study a two-stage game in which each player can either commit to a quantity in stage 1 or wait till stage 2. They show that committing is more risky for the high cost firm and that, consequently, risk dominance considerations, as in J. C. Harsanyi and R. Selten [A general theory of equilibrium selection in games. Cambridge, MA: MIT Press (1988; Zbl 0693.90098)], allow the conclusion that only the low cost firm will choose to commit. Hence, the low cost firm will emerge as the endogenous Stackelberg leader.

MSC:
91A20 Multistage and repeated games
91B52 Special types of economic equilibria
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