DP17307 The Limits of Commitment

Author(s): Jacopo Bizzotto, Toomas Hinnosaar, Adrien Vigier
Publication Date: May 2022
Keyword(s): commitment, robustness, Sequential Games, Stackelberg competition
JEL(s): C72, D43, D82
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17307

We parameterize commitment in leader-follower games by letting the leader publicly choose her action set from a menu of options. We fully characterize for a large class of settings the set of equilibrium outcomes obtained when varying the degree of commitment that the leader has. We identify conditions under which giving more commitment power to the leader could end up making her worse off. Moreover, with partial commitment, the follower might obtain a larger payoff than the leader even in settings where the latter possesses a first-mover advantage under full commitment. We explore the implications of our analysis for oligopolies.