On the Unique D1 Equilibrium in the Stackelberg Model with Asymmetric Information

This note studies a version of the Stackelberg model in which the Leader has more information about demand than the Follower. We show that there exists a unique D1 equilibrium and that this equilibrium is perfectly revealing. We also give a full characterization of the equilibrium in terms of the posterior beliefs of the Follower and show under which condition there is first mover disadvantage.Separating equilibria;signalling games;Stackelberg competition

Second Mover Advantage and Bertrand Dynamic Competition: An Experiment

In this paper we provide an experimental test of a dynamic Bertrand duopolistic model, where firms move sequentially and their informational setting varies across different designs. Our experiment is composed of three treatments. In the first treatment, subjects receive information only on the costs and demand parameters and on the price’ choices of their opponent in the market in which they are positioned (matching is fixed); in the second and third treatments, subjects are also informed on the behaviour of players who are not directly operating in their market. Our aim is to study whether the individual behaviour and the process of equilibrium convergence are affected by the specific informational setting adopted. In all treatments we selected students who had previously studied market games and industrial organization, conjecturing that the specific participants’ expertise decreased the chances of imitation in treatment II and III. However, our results prove the opposite: the extra information provided in treatment II and III strongly affects the long run convergence to the market equilibrium. In fact, whilst in the first session, a high proportion of markets converge to the Nash-Bertrand symmetric solution, we observe that a high proportion of markets converge to more collusive outcomes in treatment II and more competitive outcomes in treatment III. By the same token, players’ profits significantly differ in three settings. An interesting point of our analysis relates to the assessment of the individual behavioural rules in the second and third treatments. When information on the behaviour of participants on uncorrelated markets is provided, players begin to adopt mixed behavioural rules, in the sense that they follow myopic best reply rules as long as their profits are in line with the average profits on all markets, and , when their gains fall below that threshold, they start imitating successful strategies adopted on other markets

One-Leader and Multiple-Follower Stackelberg Games with Private Information

July 2014. Revised August 201

Competitive Pricing in Markets with different overhead costs: concealment or leakage of information.

Pricing; Markets; Market; Costs; Cost; Information; Accounting; Research;

Investment I-Game with Flexibility and Demand Uncertainty ∗

This paper embeds real options in an investment game of incomplete information in a duopolistic market, where product market competition influences the state value of the investment, and entry times are endogenously determined. The model incorporates private information over types and unveils new features of strategic interactions in imperfectly competitive markets when firms are faced with the trade-off between commitment and flexibility under demand uncertainty. The paper illustrates that type-asymmetry and/or initial demand level alone, as have been previously adopted in the literature, are insufficient criteria upon which endogenous roles under uncertainty may be determined when firms have private information over their types. Rather, the ex post market structure is determined by threshold functions whose images lie in the type-space of the firms. These functions, therefore, specify, ex ante, the firms ’ optimal strategies, which may involve (anti)-coordination. The model is extended to consider the plausible case where a firm is able to credibly “fool ” its rival by masking its type. The threshold functions, and thus, ex post market structures obtained in equilibrium are found to be characteristically the same as with when types are truthfully revealed. Therefore, the competitive behaviour of firms remain the same whether or not there are industry regulations that make it illegal for firms to falsify, mask, or lie about their profits

On the Unique D1 Equilibrium in the Stackelberg Model with Asymmetric Information

This note studies a version of the Stackelberg model in which the Leader has more information about demand than the Follower. We show that there exists a unique D1 equilibrium and that this equilibrium is perfectly revealing. We also give a full characterization of the equilibrium in terms of the posterior beliefs of the Follower and show under which condition there is first mover disadvantage.

Essays on Timing of Firm Actions in Industrial Economics

The timing of actions by firms plays an important role in industrial economics. It is key to strategic advantage in oligopoly models whether firms compete on quantity or on price. In a vertical relationship between input suppliers and final-good manufacturers, a firm which chooses a strategy first will take into account the response by those firms moving second and different sequence of play leads to different market outcomes. In my dissertation, I study the determinants and implications of the timing of firm actions in a variety of scenarios. In my first two essays, I examine how market leadership may arise endogenously in oligopoly models and focus on the effect of information about uncertain market demand. My first essay studies a quantity game and I identify the circumstance under which a perishable information asymmetry regarding stochastic demand causes market leadership. In an information acquisition game, I show that Stackelberg equilibrium in the full game is supported only when firms have different costs of information. My second essay considers a duopoly in which firms supply a differentiated product and compete on price. I find that different equilibrium outcomes arise under different information structures. Under asymmetric information, a firm’s information advantage leads to a strategic disadvantage of leading in the price game. The time value of information may well be negative, contrasting with results in the first essay. In my third essay, I consider a vertical relationship in which a supplier sets the price of an input and the firm that produces the final good must choose how much to invest in some complementary input or process. Two models with different sequence of firm actions are studied and yield different pricing strategies for the upstream monopolist. Interestingly, a change of the sequence from one model (the upstream firm commits to input prices first) to the other (the upstream firm sets input prices after investments are made) benefits all parties including the upstream monopolist, the downstream firms and the consumers

Co-opetition in standard-setting: the case of the Compact Disc

The success of the CD has (partly) been attributed to the ability of Sony, Philips and Matsushita to cooperate in the run-up to the DAD conference in 1981, where the technological standard was set. We model the situation leading up to the conference in a simple game with technological progress and the possibility of prelaunching a technology. We identify players' trades between prelaunching(which ends technological progress) and continued development (which involves the risk of being pre-empted). Contrasting outcomes with complete and incomplete information, we find that there appeared to be considerable uncertainty about rivals' technological progress

An Empirical Study of Declining Lead Times: Potential Ramifications on the Performance of Early Market Entrants

This study examines innovation lead time, the construct believed to be the key determinant of launch order strategic value. Anecdotal evidence has suggested that innovation lead times are continuing to decrease as the result of new product development acceleration strategies. However, broad scale empirical evidence regarding product launches since 1984 has not been forthcoming. This study fills the void by comparing lead times for first movers and second movers across a 20-year time span, ending in 2004. Results confirm that first-mover lead times have continued to decrease significantly, whereas second-mover lead times have decreased marginally

Status Quo Effects in Fairness Games: Reciprocal Responses to Acts of Commission vs. Acts of Omission

Both the law and culture distinguish between acts of commission that overturn the status quo and acts of omission that uphold it. This distinction is of central importance when it comes to reciprocal actions. A stylized fact of everyday life is that acts of commission elicit stronger reciprocal responses than do acts of omission. We report experiments that directly test whether this stylized fact characterizes behavior in controlled experiments. We compare reciprocal responses to both types of acts in experiments using binary, extensive form games. Across three experiments, we examine the robustness of our results to different ways in which the status quo can be induced in experiments. The data show a clear difference between effects of acts of commission and omission by first movers on reciprocal responses by second movers