Endogenous Stackelberg Leadership

We consider a linear quantity setting duopoly game and analyze which of the players will commit when both players have the possibility to do so. To that end, we study a 2-stage game in which each player can either commit to a quantity in stage 1 or wait till stage 2. We show that committing is more risky for the high cost rm and that, consequently, risk dominance considerations, as in Harsanyi and Selten (1988), allow the conclusion that only the low cost rm will choose to commit. Hence, the low cost rm will emerge as the endogenous Stackelberg leader. Hurkens gratefully acknowledges nancial support from EC grant ERBCHGCT 93-0462. CentER, Tilburg University, P.O. Box 90153, 5000 LE Tilburg, The Netherlands. Department of Economics, Universitat Pompeu Fabra, Ramon Trias Fargas 25-27, 08005 Barcelona, Spain.