EQUILIBRIUM SELECTION IN THE YANO MODEL OF PRICE LEADERSHIP

Takashi Komatsubara

Pacific Economic Review, 2008, vol. 13, issue 5, 649-655

Abstract: Abstract. A number of studies have provided a theoretical explanation for the fact that the technologically superior firm becomes a price leader in a duopoly market for a homogeneous product. While previous studies show that the state in which the technologically superior firm becomes a price leader is a Nash equilibrium (superior leader equilibrium), they do not eliminate the possibility that the state in which the technologically inferior firm becomes a price leader is also a Nash equilibrium (inferior leader equilibrium). We demonstrate that an inferior leader equilibrium can be eliminated by the iterative elimination of weakly dominated strategies.

Date: 2008
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