Competing for market shares: Does the order of moves matter even when it shouldn’t?

Tanja Hörtnagl, Rudolf Kerschbamer and Rudi Stracke

Journal of Economic Behavior & Organization, 2019, vol. 166, issue C, 346-365

Abstract: This paper investigates whether the order of moves affects behavior and outcomes even in the absence of material incentives for pre-commitment. Evidence from laboratory experiments with shared rents, symmetric players and either a simultaneous or a sequential move order suggests that it is an inherent advantage to move second rather than first. The reason is that first movers face strategic uncertainty, while second movers have the power to ultimately determine the outcome through their investment choices. Many first movers acknowledge this power and decrease investments below the standard prediction which is interpreted as an attempt to collude. This strategy leads to higher absolute payoffs for the first-movers compared to a situation where they do not try to establish collusion. However, relative payoffs are low since collusive outcomes are typically asymmetric to the advantage of the second mover.

Keywords: Sequential competition; Order of moves; Experiment; Second-Mover advantage; Collusion; Contest (search for similar items in EconPapers)
JEL-codes: C72 C92 D21 D74 L13 L22 M37 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:166:y:2019:i:c:p:346-365

DOI: 10.1016/j.jebo.2019.07.005

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