Reverse First-mover and Second-mover Advantage in a Vertical Structure

DongJoon Lee, Kangsik Choi and Kyu-Chan Hwang

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the issue of the first-mover and second-mover advantage in a vertical structure in which each manufacturer trades with a separated retailer via two-part tariffs. Compared to the canonical result in one-tier market, we find that the manufacturers' preference orderings over sequential versus simultaneous play are reversed in a vertical structure. We show that the Stackelberg leader (Stackelberg follower) had the first (second)-mover advantage in the downstream Cournot (Bertrand) competition. The first (second)-mover advantage compels its manufacturer to set the wholesale price higher than that of rival. Finally, we show that the manufacturer in which its retailer moves second (first) in a downstream Stackelberg Cournot (Bertrand) competition earns higher profits than the other in which its retailer moves first (second) in a downstream Stackelberg Cournot (Bertrand) competition.

Keywords: First- and Second-mover Advantage; Two-part Tariffs; Vertical Structure. (search for similar items in EconPapers)
JEL-codes: D43 L13 L14 (search for similar items in EconPapers)
Date: 2014-09-25
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:59803

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