Price leadership, spying, and secret price changes: a Stackelberg game with imperfect commitment

Abstract We analyze price leadership in a Stackelberg game with incomplete information and imperfect commitment. Sequential play is induced by an system, represented spy, that reports the of one firm to its rival before latter chooses own price. However, leader may secretly revise some probability. Therefore, spy’s message only signal. This gives rise complex signaling problem where both sender receiver messages have private has chance take another action find partially separating pooling equilibria satisfy equilibrium refinements such as intuitive criterion support collusive outcomes.