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Competing for market shares: Does the order of moves matter even when it shouldn't?

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  • Hoertnagl, Tanja
  • Kerschbamer, Rudolf
  • Stracke, Rudi
Abstract
This paper investigates whether the order of moves affects behavior and outcomes even in the absence of material incentives for pre-commitment. Evidence from laboratory experiments with shared rents, symmetric players and either a simultaneous or a sequential move order suggests that it is an inherent advantage to move second rather than first. The reason is that first movers face strategic uncertainty, while second movers have the power to ultimately determine the outcome through their investment choices. Many first movers acknowledge this power and decrease investments below the standard prediction which is interpreted as an attempt to collude. This strategy leads to higher absolute payoffs for the first-movers compared to a situation where they do not try to establish collusion. However, relative payoffs are low since collusive outcomes are typically asymmetric to the advantage of the second mover. (C) 2019 Elsevier B.V. All rights reserved.

Suggested Citation

  • Hoertnagl, Tanja & Kerschbamer, Rudolf & Stracke, Rudi, 2019. "Competing for market shares: Does the order of moves matter even when it shouldn't?," Munich Reprints in Economics 78290, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:78290
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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