A continuum of commitment

Thomas Weber

Economics Letters, 2014, vol. 124, issue 1, 67-73

Abstract: We examine a generic three-stage game for two players with alternating moves, where the first player can choose the level of adjustment cost to be paid in the last period to modify the action she announced in the first period. In the resulting continuum of commitment options, convexifying the choice between first-mover and second-mover advantage in pure strategies, we characterize when an intermediate adjustment-cost level is chosen in equilibrium. We show that the wastefulness of the adjustment cost may be in the players’ best interest, improving both of their individual net payoffs over making any fraction of the adjustment cost a side-payment from the first to the second player.

Keywords: Adjustment cost; Endogenous commitment; First-mover advantage; Regulatory commitment; Second-mover advantage; Time consistency (search for similar items in EconPapers)
JEL-codes: C72 D43 D61 L13 L51 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:124:y:2014:i:1:p:67-73

DOI: 10.1016/j.econlet.2014.04.013

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