Family Decision-Making: Kinked Demand and the First-Mover Disadvantage Seminar
Speaker: Evangelos Rouskas, University of the Aegean, GREECE
Abstract: In this paper, the key argument put forward is that, due to the possibility of sharing, one unit of a product under examination may deliver higher gross utility to a two-person family than to one person acting independently. Based on this argument, I propose a family decision-making framework that is characterized by kinked demand functions, and I offer a treatment of Stackelberg markets with one leader and one follower. My main contribution is that the profits of the follower can be higher than the profits of the leader. I call this the first-mover disadvantage. This occurs generically when families have a relatively low willingness-to-pay for a second unit and the sharing effect is quite strong. In the parameter region that supports the first-mover disadvantage, compared to the Cournot duopoly, both the leader and the follower capture higher profits, whereas the consumer surplus is lower.
Host: Bipasa Datta (York)