Strategic rationing in Stackelberg games

Niloofar Yousefimanesh, Iwan Bos and Dries Vermeulen

Games and Economic Behavior, 2023, vol. 140, issue C, 529-555

Abstract: This paper examines Stackelberg price-quantity competition with imperfectly substitutable products. Under general cost and demand conditions, we establish existence of a subgame-perfect Nash equilibrium and provide a full characterization of the set of subgame-perfect Nash equilibria. In each equilibrium, the leader rations part of its clientele. Assuming linear demand and cost functions, first- and second-mover advantages are shown to critically depend on the degree of spillover demand, i.e., how many of the unserved customers visit the follower. We identify the presence of a spillover demand paradox. The leader may be the bigger firm and make more profit, but only when a sufficiently large part of its unmet demand shifts to the follower.

Keywords: Price-quantity competition; Rationing; Spillover demand; Stackelberg models (search for similar items in EconPapers)
JEL-codes: C72 D43 L13 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:140:y:2023:i:c:p:529-555

DOI: 10.1016/j.geb.2023.05.001

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