A Note on Fat Cats and Puppy Dogs

Thomas von Ungern-Sternberg

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: This paper studies under what circumstances an incumbent has an incentive to over-invest in a "commitment variable" such as advertising or R&D expenditures. It is sometimes argued that the answer crucially depends on the question, wether the "second stage variables" are strategic complements or substitutes. We show that in the derivation of this result the authors implicitly make the (very) restrictive assumption that the first stage "commitment variable" has no direct effect on the competitor's reaction function. Once this assumption is relaxed the clear cut distinction along the lines "strategic complements", "strategic substitutes" no longer holds.

Keywords: strategic substitutes and complements; Tirole (search for similar items in EconPapers)
JEL-codes: L00 L13 (search for similar items in EconPapers)
Pages: 9 pages
Date: 1999-09
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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:9913

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