Extended Games Played by Managerial Firms with Asymmetric Costs

Abstract

Both demand and cost asymmetries are considered in oligopoly model with managerial delegation. It shows that (i) both efficient and inefficient firms with delegation have second move advantage under quantity setting and first move advantage under price competition; (ii) the extended games under both quantity and price competition have subgame equilibria. Lastly, the social welfare of all strategy combinations is considered to find that when the efficient firm moves first and the inefficient firm moves second under price competition, the social welfare can be higher than Bertrand case, if the efficiency gap between the two firms is huge.