Date of Award

8-2011

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Economics

Major Professor

Scott M. Gilpatric

Committee Members

William S. Neilson, Rudy Santore, Phillip R. Daves

Abstract

The timing of actions by firms plays an important role in industrial economics. It is key to strategic advantage in oligopoly models whether firms compete on quantity or on price. In a vertical relationship between input suppliers and final-good manufacturers, a firm which chooses a strategy first will take into account the response by those firms moving second and different sequence of play leads to different market outcomes. In my dissertation, I study the determinants and implications of the timing of firm actions in a variety of scenarios. In my first two essays, I examine how market leadership may arise endogenously in oligopoly models and focus on the effect of information about uncertain market demand. My first essay studies a quantity game and I identify the circumstance under which a perishable information asymmetry regarding stochastic demand causes market leadership. In an information acquisition game, I show that Stackelberg equilibrium in the full game is supported only when firms have different costs of information. My second essay considers a duopoly in which firms supply a differentiated product and compete on price. I find that different equilibrium outcomes arise under different information structures. Under asymmetric information, a firm’s information advantage leads to a strategic disadvantage of leading in the price game. The time value of information may well be negative, contrasting with results in the first essay. In my third essay, I consider a vertical relationship in which a supplier sets the price of an input and the firm that produces the final good must choose how much to invest in some complementary input or process. Two models with different sequence of firm actions are studied and yield different pricing strategies for the upstream monopolist. Interestingly, a change of the sequence from one model (the upstream firm commits to input prices first) to the other (the upstream firm sets input prices after investments are made) benefits all parties including the upstream monopolist, the downstream firms and the consumers.

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