Debt financing in a duopoly with asymmetric costs

This paper examines the strategic use of debt financing in a quantity-setting duopoly with asymmetric costs. Before output competition (Cournot or Stackelberg) demand uncertainty takes place, both firms can strategically choose to issue commit an aggressive stance. We find that debt, serving as commitment device, help disadvantaged firm ( i.e. , high-cost Cournot follower Stackelberg competition) leapfrog its superior rival product market competition. Moreover, light substitution between first-mover advantage and financing, when order firms’ moves is endogenously determined, sizable parameter region, there exists Pareto-dominant equilibrium acts leader.