Firms timing of production with heterogeneous consumers

Cong Pan

Canadian Journal of Economics, 2018, vol. 51, issue 4, 1339-1362

Abstract: I revisit endogenous timing in a quantity-setting duopoly game. In the basic model, I show that given strong heterogeneity in consumers willingness to pay ( WTP ) and a moderately small consumer segment with low WTP , sequential moving outcomes can appear in equilibrium with the follower enjoying second-mover advantage. Owing to consumer heterogeneity in WTP , there is a local property that a firm's aggressive behaviour may lead to a competitor responding more aggressively. Hence, the sequential moves can restrict firms total outputs to avoid a price collapse, and result in firms strategic choices that Pareto dominate those under the simultaneous move. I further generalize my results and show that although firms compete in quantity, under some conditions of the demand function, features of strategic complements can appear.

JEL-codes: D21 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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