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Second-Mover Advantage and Price Leadership in Bertrand Duopoly

By Rabah Amir and Anna Stepanova


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 the cases where prices are either strategic substitutes and/or complements, dispensing with common extraneous assumptions. We show that a firm with a sufficiently 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 riskdominance. This yields sequential play with the low-cost firm as leader as the unique equilibrium outcome

Year: 2002
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