Endogenous Stackelberg equilibria with identical firms

A symmetric duopoly with two production periods is considered. In the first period firms simultaneously choose initial production levels. These outputs become common knowledge and then additional second period outputs are chosen simultaneously. The market clears after the second period. If production costs fall slightly over time, a symmetric equilibrium in pure strategies does not exist. There are two Stackelberg leader-follower outcomes; in each outcome one firm produces only in the first period and the other produces its best response in the second period. This paper allows the firms to use mixed strategies and analyzes a symmetric mixed strategy equilibrium. Journal of Economic Literature Classification Numbers: D43, L13. (C) 1996 Academic Press, Inc.