Leonardo Basso, Universidad de Chile

Abstract:

We study a general duopoly game to show that whether the competition is simultaneous or sequential depends essentially on the endogenizing game (the framework that may endogenously induce the timing of movements) and the sub (or super) modularity of the payoff functions. This result challenges the idea that the timing depends on an intrinsic difference of the players (such as marginal cost or capacity of production). In particular, we show that when competition is supermodular, the interaction is sequential;
and when it is submodular, it can be simultaneous or sequential depending on the considered endogenizing game (observable delay or action commitment) and risk dominance considerations. Thus, leadership may emerge endogenously in equilibrium depending only on characteristics of the industry, such as the mode of competition and commitment possibilities.