How Risk Disciplines Pre-commitment

Christophe Caron () and Thierry Lafay ()

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Abstract: This paper studies the entry strategies of firms on risky markets. We focus on markets where demand is affine and cost is linear, moreover, the demand includes a normally distributed random variable. In such a model, we show that the leader's strategy changes with the level of market risk even when firms are risk neutral. Therefore, the availability of future information for a Stackelberg follower has a feedback effect on the leader's strategy. We also show that compared with traditional markets with no risk, the basic trade-off between flexibility and pre-commitment is only slightly changed in the qualitative game where firms are free to choose when to enter the market.

Keywords: Cournot Competition; Stackelberg; Preemption; Information Value; Market Risk (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (3)

Published in Theory and Decision, 2008, 65 (3), pp.205-226

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00825882

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