Skip to main content
SpringerLink
Log in

Commitment, first-mover-, and second-mover advantage

  • Published:
Journal of Economics Aims and scope Submit manuscript

Abstract

We identify circumstances under which a firm with a first-mover advantage may get leapfrogged by a follower. At the market stage we assume a Stackelberg structure, i.e. the leader commits to a quantity and the follower reacts to it. We allow the owners of both firms to select the internal organization and the production technology before quantities are set. That is, leader and follower can additionally use two commitment strategies alternatively or in combination: investing in R&D and delegating quantity decisions to managers. Despite the symmetry of options for the two firms, we find that there is a unique equilibrium in which both firms invest in process R&D, only the follower delegates, and the follower can overcome the first-mover advantage of the quantity leader and obtain a higher profit than the leader. Our analysis reveals that there are some important differences between the two commitment devices “cost-reducing R&Dt” and “delegation to managers”.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Amir R and Stepanova A (2006). Second-mover advantage and price leadership in Bertrand Duopoly. Games Econ Behav 55: 1–20

    Article  Google Scholar 

  • Bagwell K (1995). Commitment and observability in games. Games Econ Behav 8: 271–280

    Article  Google Scholar 

  • Basu K (1995). Stackelberg equilibrium in oligopoly: an explanation based on managerial incentives. Econ Lett 49: 459–464

    Article  Google Scholar 

  • Besanko D, Dranove D, Shanley M, Schaefer S (2007) Economics of strategy, 4th edn. Wiley, New York

  • Bonatti A, Martina R (2007) Multi-stage games with sequential choices and the second-mover advantage, working paper

  • Brander JA and Lewis TR (1986). Oligopoly and financial structure: the limited liability effect. Am Econ Rev 76(5): 956–970

    Google Scholar 

  • Brander JA and Spencer BJ (1983). Strategic commitment with R&D: the symmetric case. Bell J Econ 14(1): 225–235

    Article  Google Scholar 

  • Bulow JI, Geanakoplos JD and Klemperer PI (1985). Multimarket oligopoly: strategic substitutes and complements. J Polit Econ 93(3): 488–511

    Article  Google Scholar 

  • Chen M-J and MacMillan IC (1992). Nonresponse and delayed response to competitive moves: the roles of competitor dependence and action irreversibility. Acad Manag J 35(3): 539–570

    Article  Google Scholar 

  • Cho D-S, Kim D-J and Rhee DK (1998). Latecomer strategies: evidence from the semiconductor industry in Japan and Korea. Organ Sci 9(4): 489–505

    Article  Google Scholar 

  • Cottrell T and Sick G (2002). Real options and follower strategies: the loss of real option value to first-mover advantage. Eng Econ 47(3): 232–263

    Article  Google Scholar 

  • De Bondt R and Henriques I (1995). Strategic investments with asymmetric spillovers. Can J Econ 28(3): 656–674

    Article  Google Scholar 

  • Dixit A (1979). A model of Duopoly suggesting a theory of entry barriers. Bell J Econ 10(1): 20–32

    Article  Google Scholar 

  • Dixit A (1980). The role of investment in entry-deterrence. Econ J 90: 95–106

    Article  Google Scholar 

  • Dixon H (1985). Strategic investment in an industry with a competitive product market. J Ind Econ 32(4): 483–499

    Article  Google Scholar 

  • Dowrick S (1986). von Stackelberg and Cournot duopoly: choosing roles. Rand J Econ 17(2): 251–260

    Article  Google Scholar 

  • Hamilton J and Slutsky S (1990). Endogeous timing in Duopoly games: Stackelberg or Cournot equilibria. Games Econ Behav 2: 29–46

    Article  Google Scholar 

  • Fershtman C (1985). Managerial incentives as a strategic variable in duopolistic environment. Int J Ind Organ 3: 245–253

    Article  Google Scholar 

  • Fershtman C and Judd KL (1987). Equilibrium incentives in oligopoly. Am Econ Rev 77: 927–940

    Google Scholar 

  • Fershtman C, Judd KL (1990) Strategic incentive manipulation in Rivalrous Agency, working paper

  • Fershtman C, Judd KL and Kalai E (1991). Observable contracts: strategic delegation and cooperation. Int Econ Rev 32(3): 551–559

    Article  Google Scholar 

  • Gal-Or E (1985). First mover and second mover advantages. Int Econ Rev 26(3): 649–653

    Article  Google Scholar 

  • Goel RK (1990). Innovation, market structure and welfare: a Stackelberg model. Q Rev Econ Bus 30(1): 40–54

    Google Scholar 

  • Hamilton JH and Slutsky SM (1990). Endogenous timing in Duopoly games: Stackelberg or Cournot equilibria. Games Econ Behav 2: 29–46

    Article  Google Scholar 

  • Henkel J (2002). The 1.5th mover advantage. Rand J Econ 33(1): 156–170

    Article  Google Scholar 

  • Jansen T, Van Lier A and Van Witteloostuijn A (2007). A note on strategic delegation: the market share case. Int J Ind Organ 25: 531–539

    Article  Google Scholar 

  • Kerin RA, Varadarajan PR and Peterson RA (1992). First-mover advantage: a synthesis, conceptual framwork, and research propositions. J Mark 56: 33–52

    Article  Google Scholar 

  • Kopel M and Riegler C (2006a). R&D in a strategic delegation game revisited: a note. Manag Dec Econ 27(7): 605–612

    Article  Google Scholar 

  • Kopel M, Riegler C (2006b) Delegation in an R&D Game with spillovers (forthcoming). In: Cellini R, Lambertini L (eds) The economics of innovation: incentives, cooperation, and R&D policy

  • Kopel M, Löffler C (2007) Endogenous timing and strategic managerial incentives in a Duopoly game, working paper

  • Kräkel M (2004). R&D spillovers and strategic delegation in oligopolistic contests. Manag Dec Econ 25: 147–156

    Article  Google Scholar 

  • Lambertini L (2000a). Extended games played by managerial firms. Jpn Econ Rev 51(2): 274–283

    Article  Google Scholar 

  • Lambertini L (2000b). Strategic delegation and the shape of market competition. Scott J Polit Econ 47(5): 550–570

    Article  Google Scholar 

  • Lambertini L, Primavera G (2000) Delegation versus cost-reducing R&D in a Cournot Duopoly. Working paper, University of Bologna

  • Lambertini L and Rossini G (1998). Capital commitment and Cournot competition with labour-managed and profit-maximizing firms. Aust Econ Pap 37(1): 14–21

    Article  Google Scholar 

  • Lieberman MB and Montgomery DB (1988). First-mover advantages. Strat Manag J 9: 41–58

    Article  Google Scholar 

  • Lieberman MB and Montgomery DB (1998). First-mover (dis)advantages: retrospective and link with the resource-based view. Strat Manag J 19: 1111–1125

    Article  Google Scholar 

  • Liu Z (2005). Stackelberg leadership with demand uncertainty. Manag Dec Econ 26: 345–350

    Article  Google Scholar 

  • Löffler C (2008) Strategische Selbstbindung und Zeitführerschaft. Doctoral thesis, Vienna University of technology. Deutscher Universitätsverlag, Wiesbaden (forthcoming)

  • Lyandres E (2006). Caital structure and interaction among firms in output markets: theory and evidence. J Bus 79(5): 2381–2421

    Article  Google Scholar 

  • Maggi G (1999). The value of commitment with imperfect observability and private information. Rand J Econ 30(4): 555–574

    Article  Google Scholar 

  • Neven DJ (1989). Strategic entry deterrence: recent developments in the economics of industry. J Econ Surv 3(3): 213–233

    Article  Google Scholar 

  • Ohnishi K (2001) Lifetime employment contract and strategic entry deterrence: Cournot and Bertrand outcomes. Aust Econ Pap 40:30–43

    Google Scholar 

  • Okuguchi K (1999). Cournot and Stackelberg Duopolies revisited. Jpn Econ Rev 50(3): 363–367

    Article  Google Scholar 

  • Polo M and Tedeschi P (1992). Managerial contracts collusion and mergers. Ricerche Economiche XLVI(3-4): 281–302

    Google Scholar 

  • Polo M and Tedeschi P (2000). Delegation games and side contracting. Res Econ 54: 101–116

    Article  Google Scholar 

  • Roberts D, Ihlwan M, Rowley I, Edmondson G (2005) GM and VW: How not to Succeed in China. BusinessWeek 9 May, pp 22–23

  • Schelling TC (1960) Strategy of conflict. Harvard University Press, Cambridge

  • Schelling TC (2006) Strategies of comittment. Harvard University Press, Cambridge

  • Sklivas SD (1987). The strategic choice of managerial incentives. Rand J Econ 18: 452–458

    Article  Google Scholar 

  • Stalter K (2002) Moving first on a winning idea doesn’t ensure first-place finish. Pioneers and pitfalls. Investor’s Business Daily, 7 October 2002

  • Suarez F, Lanzolla G (2005) The half-truth of first-mover advantage. Harvard Bus Rev 83(4):121–127

    Google Scholar 

  • Tellis GJ and Golder PN (2001). Will and vision: How latecomers grow to dominate markets. McGraw-Hill, New York

    Google Scholar 

  • The Economist (2006) Germany’s export champions. The problem with solid engineering, 18 May 2006

  • Vardy F (2004). The value of commitment in Stackelberg games with observation costs. Games Econ Behav 49: 374–400

    Article  Google Scholar 

  • Vickers J (1985). Delegation and the theory of the firm. Econ J Suppl 95: 138–147

    Google Scholar 

  • von Stackelberg H (1934) Marktform und Gleichgewicht, Wien

  • Wanzenried G (2003). Capital market decisions and output market competition under demand uncertainty. Int J Ind Organ 21: 171–200

    Article  Google Scholar 

  • Ware R (1984). Sunk costs and strategic commitment: a proposed three-stage equilibrium. Econ J 94: 370–378

    Article  Google Scholar 

  • Weissmann A (2007) Austrian airlines provides link to the future for Iraq. Travelweekly, 6 February 2007

  • Wiethaus L (2005) Excess absorptive capacity and the persistence of monopoly. Working paper, University of Hamburg, Department of Economics

  • Zhang J and Zhang Z (1997). R&D in a strategic delegation game. Manag Dec Econ 18: 391–398

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Institute of Management Science, Vienna University of Technology, Theresianumgasse 27, 1040, Vienna, Austria

    Michael Kopel

  2. Department of Finance, University of Vienna, Brünnerstraße 72, 1210, Vienna, Austria

    Clemens Löffler

Authors
  1. Michael Kopel
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Clemens Löffler
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Michael Kopel.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Kopel, M., Löffler, C. Commitment, first-mover-, and second-mover advantage. J Econ 94, 143–166 (2008). https://doi.org/10.1007/s00712-008-0004-4

Download citation

  • Received:

  • Revised:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00712-008-0004-4

Keywords

JEL Classification

Search

Navigation