Endogenous Price Leadership Eric

We consider a linear price setting duopoly game with dierentiated products and determine endogenously which of the players will lead and which will follow. While the follower role is most attractive for each rm, we show that waiting is more risky for the low cost rm so that, consequently, risk dominance considerations, as in Harsanyi and Selten (1988), allow the conclusion that only the high cost rm will choose to wait. Hence, the low cost rm will emerge as the endogenous price leader. JEL Classination Numbers: C72, D43