Quantity Leadership and Social Inefficiency

A game of simultaneous free entry and sequential output choices is analyzed. Firms enter simultaneously in stage 1 by paying a fixed cost, and they choose output levels sequentially in subsequent stages. At the subgame-perfect equilibrium of the game, the production level of a firm is decreasing with the order of the firm in the decision-making. The firm that is the last to choose output produces the same amount as a typical firm in the standard symmetric simultaneous-moves Cournot game. Moreover, industry output and market price are identical in the sequential and the symmetric Cournot games. It follows that in the sequential game there are fewer active firms and higher total surplus than in the standard symmetric Cournot game. Strategic asymmetry results in higher concentration and higher total surplus without an increas