Price leadership in a homogeneous product market |
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Authors: | Daisuke Hirata Toshihiro Matsumura |
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Institution: | (1) Robins School of Business, University of Richmond, 1 Gateway Road, Richmond, VA 23173, USA;(2) Department of Economics, Kent State University, Kent, OH 44242, USA |
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Abstract: | The present paper reexamines the price-setting Stackelberg duopoly with asymmetric and strictly convex cost functions in a
homogeneous product market. It demonstrates that in a generic environment, the higher-cost firm is likely to be the price
leader. That is, leadership by such a firm is either (a) a unique equilibrium or (b) a payoff- and risk-dominant equilibrium
in the observable delay game. Thus, while this paper complements and generalizes the findings of recent studies that indicate
the possibility of the higher-cost firm’s leadership in homogeneous product markets, it also contrasts with the traditional
literature that predicts the dominant-firm price leadership in various environments. |
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Keywords: | |
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