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Firms’ timing of production with heterogeneous consumers
Author(s) -
Pan Cong
Publication year - 2018
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12360
Subject(s) - duopoly , economics , microeconomics , production (economics) , first mover advantage , function (biology) , pareto principle , strategic complements , willingness to pay , consumer demand , pareto optimal , industrial organization , cournot competition , operations management , mathematics , mathematical optimization , evolutionary biology , biology , multi objective optimization
I revisit endogenous timing in a quantity‐setting duopoly game. In the basic model, I show that given strong heterogeneity in consumers’ willingness to pay ( WTP ) and a moderately small consumer segment with low WTP , sequential moving outcomes can appear in equilibrium with the follower enjoying second‐mover advantage. Owing to consumer heterogeneity in WTP , there is a local property that a firm's aggressive behaviour may lead to a competitor responding more aggressively. Hence, the sequential moves can restrict firms’ total outputs to avoid a price collapse, and result in firms’ strategic choices that Pareto dominate those under the simultaneous move. I further generalize my results and show that although firms compete in quantity, under some conditions of the demand function, features of strategic complements can appear.