Showing papers on "Stackelberg competition published in 2004"
TL;DR: This paper addresses the problem of choosing the appropriate reverse channel structure for the collection of used products from customers and shows that simple coordination mechanisms can be designed such that the collection effort of the retailer and the supply chain profits are attained at the same level as in a centrally coordinated system.
Abstract: The importance of remanufacturing used products into new ones has been widely recognized in the literature and in practice. In this paper, we address the problem of choosing the appropriate reverse channel structure for the collection of used products from customers. Specifically, we consider a manufacturer who has three options for collecting such products: (1) she can collect them herself directly from the customers, (2) she can provide suitable incentives to an existing retailer (who already has a distribution channel) to induce the collection, or (3) she can subcontract the collection activity to a third party. Based on our observations in the industry, we model the three options described above as decentralized decision-making systems with the manufacturer being the Stackelberg leader. When considering decentralized channels, we find that ceteris paribus, the agent, who is closer to the customer (i.e., the retailer), is the most effective undertaker of product collection activity for the manufacturer. In addition, we show that simple coordination mechanisms can be designed such that the collection effort of the retailer and the supply chain profits are attained at the same level as in a centrally coordinated system.
1,863 citations
TL;DR: It is proved that it is NP-hard to compute an optimal Stackelberg strategy and simple strategies with provably good performance guarantees are presented.
Abstract: We study the problem of optimizing the performance of a system shared by selfish, noncooperative users. We consider the concrete setting of scheduling small jobs on a set of shared machines possessing latency functions that specify the amount of time needed to complete a job, given the machine load. We measure system performance by the total latency of the system.
Assigning jobs according to the selfish interests of individual users, who wish to minimize only the latency that their own jobs experience, typically results in suboptimal system performance. However, in many systems of this type there is a mixture of "selfishly controlled" and "centrally controlled" jobs. The congestion due to centrally controlled jobs will influence the actions of selfish users, and we thus aspire to contain the degradation in system performance due to selfish behavior by scheduling the centrally controlled jobs in the best possible way.
We formulate this goal as an optimization problem via Stackelberg games, games in which one player acts a leader (here, the centralized authority interested in optimizing system performance) and the rest as followers (the selfish users). The problem is then to compute a strategy for the leader (a Stackelberg strategy) that induces the followers to react in a way that (approximately) minimizes the total latency in the system.
In this paper, we prove that it is NP-hard to compute an optimal Stackelberg strategy and present simple strategies with provably good performance guarantees. More precisely, we give a simple algorithm that computes a strategy inducing a job assignment with total latency no more than a constant times that of the optimal assignment of all of the jobs; in the absence of centrally controlled jobs and a Stackelberg strategy, no result of this type is possible. We also prove stronger performance guarantees in the special case where every machine latency function is linear in the machine load.
260 citations
TL;DR: In this paper, a model of successive oligopoly is applied to the European natural gas market, in which Cournot producers are also Stackelberg leaders with respect to traders, who may be Cournot oligopolists or price takers.
Abstract: A model of successive oligopoly is applied to the European natural gas market. The model has a two-level structure, in which Cournot producers are also Stackelberg leaders with respect to traders, who may be Cournot oligopolists or price takers. Several conclusions emerge. First, successive oligopoly (double marginalization) yields higher prices and lower consumer welfare than if oligopoly exists only on one level. Second, due to the high concentration of traders, prices are distorted more by market power in trading than in production. Third, trader profits depend on whether producers can price discriminate among consuming sectors; if so, producers collect a greater share of the profits. Finally, when traders increase in number; prices approach competitive levels. Thus, it is important to prevent concentration in the downstream gas market. If oligopolistic trading cannot be prevented, vertical integration should not be discouraged, especially if it would increase the number of traders.
166 citations
TL;DR: With price competition and costly production adjustment, static strategic complementarity turns into intertemporal strategic substitutability and the MPE steady-state outcome is more competitive than static Bertrand competition.
107 citations
TL;DR: This paper characterizes a class of games in which bad reputation is unambiguously bad, and allows a broad set of commitment types, including the “Stackelberg type†used to prove positive results on reputation.
Abstract: In traditional reputation theory, reputation is good for the long-run player. In "Bad Reputation," Ely and Valimaki give an example in which reputation is unambiguously bad. This paper characterizes a more general class of games in which that insight holds, and presents some examples to illustrate when the bad reputation effect does and does not play a role. The key properties are that participation is optional for the short-run players, and that every action of the long-run player that makes the short-run players want to participate has a chance of being interpreted as a signal that the long-run player is "bad." We also broaden the set of commitment types, allowing many types, including the "Stackelberg type" used to prove positive results on reputation. Although reputation need not be bad if the probability of the Stackelberg type is too high, the relative probability of the Stackelberg type can be high when all commitment types are unlikely.
92 citations
TL;DR: In this article, a variant of the inspection game in which the inspector can act as a Stackelberg leader is discussed, and it is shown that increasing the inspector's incentives to enforce the law increases the frequency of law infractions.
Abstract: Inspection games are 2x2 games in which one playermust decide whether to inspect the other player, who in turnmust decide whether to infringe a norm or a regulation.Inspection games have a single, mixed strategy Nashequilibrium, which has counter-intuitive comparative staticsproperties. This result has been used by Tsebelis (1989) andHoller (1992) to show that the economic approach to lawenforcement is not likely to generate clear-cut predictions.In this paper I discuss a variant of the inspection game inwhich the inspector can act as a Stackelberg leader. I willalso show that this version of the inspection game hascounter-intuitive comparative statics properties. Inparticular, increasing inspector’s incentives to enforce thelaw increases the frequency of law infractions.
70 citations
[...]
TL;DR: The set ofEquilibria with espionage is characterized as a sunset of the set of correlated equilibria, which turns out to depend on the difference between the Stackelberg equilibrium payoffs and the SPE payoffs.
63 citations
01 Jan 2004
TL;DR: This paper builds on the model and results of T. Basar and R. Srikant, (2002) and extends them to the case of differentiated prices, again for the single link case and for a many-user regime, and establishes for a general network with multiple links the existence of a unique Nash equilibrium along with a unique Stackelberg solution.
Abstract: This paper builds on the model and results of T. Basar and R. Srikant, (2002) and extends them to the case of differentiated prices, again for the single link case. It introduces a hierarchical network game with one service provider and multiple users of different types, where the service provider is allowed to charge different prices to users of different types. The service provider plays with the users a Stackelberg (leader-follower) game, while among users themselves, they play a Nash game. The paper establishes for a general network with multiple links the existence of a unique Nash equilibrium along with the existence of a unique Stackelberg solution. The economics of providing large capacity and price differentiation is examined especially in the single link case and for a many-user regime. One important result is that optimum price differentiation leads to a more egalitarian distribution of resources at fairer prices and improves the service provider's revenue and network performance. Moreover, the service provider has an incentive to increase the capacity proportionally with the number of additional users admitted.
52 citations
TL;DR: In this article, the economic effects of the code-sharing alliances between an international and a domestic airline were analyzed, and two types of Stackelberg equilibria exist.
Abstract: This paper analyzes the economic effects of the code-sharing alliances between an international and a domestic airline. If these two allied airlines and a separate unallied international airline endogenously choose the role of fare-leader or fare-follower, two types of Stackelberg equilibria exist. This finding suggests that the Stackelberg solution seems reasonable, and provides a guideline for the airlines’ role-choosing. Furthermore, although this complementary alliance improves the social welfare, it decreases the consumer surplus of the direct international passengers and may decrease that of the direct domestic passengers. The negative effects should also be considered when governments evaluate a complementary alliance.
44 citations
01 Jan 2004
TL;DR: In this article, the Stackelberg-Nash strategy is applied to a distributed PDE with a hierarchy of local and global controls, denoted by w 1, 1, 2, 3, w N, which are the followers.
Abstract: Let us consider a distributed system, i.e. a system whose state is defined by the solution of a Partial Differential Equation (PDE). We assume that we can act on this system by a hierarchy of controls. There is a “global” control v, which is the leader, and there are N “local” controls, denoted by w 1,…, w N , which are the followers. The followers, assuming that the leader has made a choice v of its policy, look for a Nash equilibrium of their cost functions (the criteria they are interested in). Then the leader makes its final choice for the whole system. This is the Stackelberg-Nash strategy.
41 citations
TL;DR: In this article, a homogeneous product duopoly with concave demand and strictly convex costs is considered, and it is shown that the leader chooses a lower price than the follower, but both get equal payoffs.
01 Dec 2004
TL;DR: In this article, the Stackelberg duopoly model is used to find that the follower is more likely to license a cost-reducing innovation to the leader than the leader is to the follower, regardless of whether licensing is in the form of a fixed fee or royalty per unit of output.
Abstract: This paper finds that in a linear Stackelberg duopoly model, the follower is more likely to license a cost-reducing innovation to the leader than the leader is to the follower, regardless of whether licensing is in the form of a fixed fee or royalty per unit of output. Under fixed-fee licensing, the follower gains more from small innovations while the leader gains more from large non-drastic innovations. Under royalty licensing, the follower always gains more than the leader from an innovation.
TL;DR: In this article, the authors examined duopoly price competition between a for-profit firm and a nonprofit organization and showed that the competitive outcome is predominantly the consequence of their different objective functions.
Abstract: This study examines duopoly price competition between a for-profit firm and a nonprofit organization. It shows that the competitive outcome is predominantly the consequence of their different objective functions. The damage to the for-profit caused by the nonprofit’s policy and regulatory advantages is only marginal. Moreover, the for-profit can protect itself by acquiring Stackelberg price leadership.
TL;DR: It is shown that, irrespective of the size of the cost, the leader's value of commitment is lost completely in all pure-str strategy equilibria, but there also exists a mixed-strategy equilibrium that fully preserves the first-mover advantage.
Book•
01 Jan 2004
TL;DR: In this article, Kliemt and Ockenfels discuss the nature of rationality and the role of arbitration in bargaining in Stackelberg games, and show that fairness and greed in bargaining games are correlated.
Abstract: Boundedly Rational Qualitative Reasoning in Comparative Statics R.Selten Complexity Constraints and Adaptive Learning: An Example T.Boergers & A.J.Morales Vengefulness Evolves in Small Groups D.Friedman & N.Singh Network Formation and Coordination Games S.K.Berninghaus & B.Vogt Specific Skills, Imperfect Information and Job Rationing H.Bester Testing Game Theory J.Weibull A Dialogue Concerning the Nature of Rationality H. Kliemt & Axel Ockenfels Behavioral Game Theory: Thinking, Learning, and Teaching C. F.Camerer, T-H.Ho & J.Kuan Chong Double Auction Markets with Stochastic Supply and Demand Schedules: Call Markets and Continuous Auction Trading Mechanisms J.H.Kagel Multistage Sealed-bid K-double Auctions: An Experimental Study of Bilateral Bargaining J.E.Parco, A.Rapoport, D. A.Seale, W.E.Stein & R.Zwick The Role of Arbitration in Bargaining G.E.Bolton & E.Katok Communication and Cooperation in a Common-Pool Resource Dilemma: A Field Experiment J-C.Cardenas, T.K.Ahn & E.Ostrom Price Competition: The Role of Gender and Education M.Dufwenberg, U.Gneezy & A.Rustichini Parity, Sympathy, and Reciprocity W.Guth & M.E.Yaari Fairness and Greed in Stackelberg Games S.Huck, M.Koenigstein & W.Muller Learning from (and in) the Ultimatum Game: An Interview with Alvin E. Roth S.Huck
TL;DR: In this paper, the authors consider an economy that incorporates cross-border shopping and where the different levels of government are concerned with the well-being of their citizens, and show how the central government as a Stackelberg leader can adjust its fiscal instruments so that the tax externalities are also internalised.
TL;DR: In this article, the authors examined the price and quality choice of a single product, risk-neutral monopolist who can delay irreversible investments required for market entry, and showed that the prices and quality she chooses at entry increase with uncertainty about the size of future demand.
Abstract: This paper examines the price and quality choice of a single product, risk-neutral monopolist who can delay irreversible investments required for market entry. It is shown that the price and quality she chooses at entry increase with uncertainty about the size of future demand. In a Stackelberg leader-follower game, the leader and follower pre-commit immediately up to a certain level of uncertainty. In this case the leader produces the higher quality good. When uncertainty is higher than this threshold, the follower will wait and enter the market later with a higher quality good.
TL;DR: For a dominance solvable version of a Cournot oligopoly with differentiated products, there is little evidence of convergence to the Nash equilibrium, and this has implications both for traditional oligopoly competition and for a wide variety of strategic situations arising on the Internet.
Posted Content•
01 Jan 2004
TL;DR: In this article, the authors characterize the incumbent's first-stage debt and capacity choices as factors in the production of an intermediate good called "output deterrence," and show that the incumbent chooses a unique capacity policy and a threshold debt policy to achieve the optimal level of deterrence coinciding with full Stackelberg leadership.
Abstract: In capital intensive industries, firms face complicated multi-stage financing, investment, and production decisions under the watchful eye of existing and potential industry rivals. We consider a two-stage simplification of this environment. In the first stage, an incumbent firm benefits from two first-mover advantages by precommiting to a debt financing policy and a capacity investment policy. In the second stage, the incumbent and a single-stage rival simultaneously choose production levels and realize stochastic profits. We characterize the incumbent's first-stage debt and capacity choices as factors in the production of an intermediate good we call "output deterrence." In our two-factor deterrence model, we show that the incumbent chooses a unique capacity policy and a threshold debt policy to achieve the optimal level of deterrence coinciding with full Stackelberg leadership. When we remove the incumbent's first-mover advantage in capacity, the full Stackelberg level of deterrence is still achievable, albeit with a higher level of debt than the threshold. In contrast, when we remove the incumbent's first-mover advantage in debt, the Stackelberg level of deterrence may no longer be achievable and the incumbent may suffer a dead-weight loss. Evidence on the telecommunications industry shows that firms have increased their leverage in a manner consistent with deterring potential rivals following the 1996 deregulation.
Posted Content•
TL;DR: In this article, the authors argue that the timing of the game rather than the ownership structure is responsible for the inefficiency associated with the presence of a public enterprise in a market open to international competition, and that allocative efficiency gains attributed to privatisation may also be explained by giving the public enterprise a first mover advantage.
Abstract: The emerging literature on interaction between strategic trade theory and mixed oligopoly uses a simple example to argue that if the domestic market is open to foreign competition and the government uses a production subsidy then it is socially preferable to pri- vatise the domestic public enterprise even if it is just as efficient as its private counterparts. This study evaluates the robustness of this result by extending it to a general framework. Furthermore, it argues that allocative efficiency gains attributed to privatisation may also be explained by giving the public enterprise a first mover advantage (as a Stackelberg leader). Thus it suggests it is the timing of the game rather than the ownership structure which is responsible for the inefficiency associated with the presence of a public enterprise in a market open to international competition.
TL;DR: The aim of this note is to slightly correct Proposition 4.1 of [Economic Letters, 61 (1998) 181] as mentioned in this paper, which is a slightly different proposition from the one in this paper.
TL;DR: In this article, the authors examined the value of commitment in Stackelberg games where the follower chooses whether to pay some cost to perfectly observe the leader's action, and found that the commitment is largely preserved when the cost of looking is small, while it is lost when the costs of looking are large.
12 Jul 2004
TL;DR: The role of vertical cooperative (co-op) advertising efficiency of transactions between a manufacturer and a retailer and the impact of brand name investments, local advertising, and sharing policy on co-op advertising programs is explored.
Abstract: In this paper, we explore the role of vertical cooperative (co-op) advertising efficiency of transactions between a manufacturer and a retailer. We address the impact of brand name investments, local advertising, and sharing policy on co-op advertising programs. Game theory concepts form the foundation for the analysis. We begin with the classical co-op advertising model where the manufacturer, as the leader, first specifies its strategy. The retailer, as the follower, then decides on its decision. We then relax the assumption of retailer’s inability to influence the manufacturer’s decisions and discuss full coordination between the manufacturer and the retailer on co-op advertising. Two alternative bargaining models are employed to select the best co-op advertising scheme for achieving full coordination.
TL;DR: In a Stackelberg oligopoly with cost asymmetry and possibility of entry, the authors showed that for a robust interval of cost of the leader, the equilibrium price is rigid with respect to small changes in demand and costs of active firms.
TL;DR: In this paper, the authors investigated strategic interactions between a private highway operator and a private transit operator who uses the same highway for its services and applied game theory to model the possible moves taken by the operators in their interactions.
Abstract: This paper investigates strategic interactions between a private highway operator and a private transit operator who uses the same highway for its services. Heterogeneity of travellers is taken into account by considering a continuous distribution of values of time. Demand elasticity arises from the inclusion of an outside virtual mode. Game theory is applied to model the possible moves taken by the operators in their interactions. Four games are formulated, representing different decision making processes, including Nash and Stackelberg (leader-follower) games. The different timings of long-run and short-run decisions are also modeled in a two-stage game. Our results indicate that the market equilibria in the four games formulated are quite different as a result of the different sequences of moves. The highway operator is considered to be in a better position in terms of profit making in most cases, while for the transit operator it will generally be more advantageous to be the follower rather than in the leader position.
TL;DR: In this paper, the authors consider a Cournot duopoly model to examine the effects of licensing on R&D organization, provided one firm behaves like a Stackelberg leader in the product market.
Abstract: In this paper we consider a Cournot duopoly model to examine the effects of licensing on R&D organization. When firms do cooperative R&D to share the cost of R&D, possibility of licensing can influence the decision on R&D organization. But, if the firms do cooperative R&D to avoid duplication in R&D process, possibility of licensing may influence the decision on R&D organization, provided one firm behaves like a Stackelberg leader in the product market.
TL;DR: This paper developed a duopoly pricing model in which firms market differentiated products in a world of uncertainty and showed that the predictions of standard strategic pricing models may not hold when firms face parameter uncertainty and are risk-averse.
Abstract: Most pricing studies assume that firms have complete information about demand. In practice, managers must make decisions, given incomplete information about the demand for their own products as well as those of their rivals. This paper develops a duopoly pricing model in which firms market differentiated products in a world of uncertainty. Results show that the predictions of standard strategic pricing models may not hold when firms face parameter uncertainty and are risk‐averse. Under well‐defined conditions, there may be a “first‐mover” disadvantage to the firm that attempts to be the Stackelberg price leader in the market, especially in a market where demand is highly uncertain. Interestingly, if parameter uncertainty is sufficiently high, it may even be necessary for the price leader to share market information with its rival. When firms are risk‐averse, uncertainty generally decreases equilibrium prices and the variabilities of profits.
TL;DR: In this article, a two-stage non-cooperative Cournot game with location choice involving r firms is considered, where each firm first selects the location of a facility and then selects the quantities to supply to the markets in order to maximize its profit.
Abstract: Consider a two-stage non-cooperative Cournot game with location choice involving r firms There are n spatially separated markets located at the vertices of a network Each firm, first selects the location of a facility and then selects the quantities to supply to the markets in order to maximize its profit Non-zero conjectural variation at the second stage in the model by Sarkar et al (1997) is studied When the demand in each market is sufficiently large, equilibrium in the quantities offered by each firm in the markets exists Furthermore, each firm chooses to locate its facility at the vertices
Abstract: This paper clarifies an issue in the Hirshleifer and Rasmusen-Tsebelis controversy on the effects of penalties on crime: what is the effect of penalties if the transgression of law has a discrete nature and if the law enforcer cannot act as Stackelberg leader? We differentiate between technical (compliance costs) and institutional (penalties) parameters in the potential transgressor’s payoff’s functions. Depending on the penalty structure, we obtain equilibria either in pure or in mixed strategies. We confirm that the role played by penalties in mixed strategy equilibria is fundamentally different from the role they play in pure strategies. We also identify sufficient conditions for the implementability and uniqueness of given equilibria when there are restrictions on the penalties and/or on the incentive schemes for the law enforcers. Finally, we give a rationalization for the use of mixed strategies as a solution concept in law enforcement games.