Endogenous timing in a price-setting duopoly: the role of the slopes

Abstract

ABSTRACT We present a model of price-setting duopolistic competition characterized by horizontal differentiation. Using the well-known Game with Observable Delay framework, we endogenously obtain the timing of the interaction. Our analysis reveals that the equilibrium timing outcome is determined by the slope of the best response functions. Specifically, when competition involves strategic substitutes (decreasing best response functions), the equilibrium timing is simultaneous. Conversely, when it involves strategic complements (increasing best response functions), the equilibrium timing is sequential, with either firm potentially taking the lead. These findings challenge a prevailing notion within the literature on endogenous timing, which posits that timing outcomes hinge on an intrinsic difference among firms, such as marginal cost, capacity, or R&D investment. Our results suggest that while such intrinsic differences may not significantly impact timing outcomes directly, they become crucial when refining multiple equilibria.