Endogenous Timing in a Quantity Setting Duopoly

I provide an equilibrium analysis of the role of private information on timing decisions of duopolists in a quantity setting framework. The firms are privately informed about their costs and may decide their quantities in one of two dates. In the unique symmetric perfect Bayesian equilibrium, a firm with a low cost produces in the first date, while a firm with a high cost produces in the second date, after having learned the other firm’s decision in the first date. Thus, if the firms have different costs, a leader-follower outcome will emerge, with leadership by the low cost firm. If the firms have the same cost, they will either play a Cournot outcome if costs are high, or both will attempt to lead in the market if both costs are low. JEL Classification: D43, L11. Please address correspondence to Fernando Branco, Universidade Católica Portuguesa, FCEE, Palma de Cima, 1649-023 Lisboa, Portugal ([email protected]). ∗Previous versions of this paper have been presented in seminars at Autoridade da Concorrência, CentER, CORE, Universidade Católica Portuguesa, Universidade Nova de Lisboa, and the following conferences: EARIE, ESEM and SPiE. Grants from Fundação Amélia de Sousa Mello and Fundação para a Ciência e Tecnologia (POCTI/ECO/13133/98/2001) are gratefully acknowledged. Errors are my own.