Reversal of the First-Mover and Second-Mover Advantage in a Two-tier Industry

Abstract We consider a two-tier industry with an upstream monopolist that charges linear input prices to downstream Stackelberg duopolists. We show that a second-mover advantage occurs in the downstream market under quantity competition and a first-mover advantage occurs in the downstream market under price competition if the upstream monopolist determines the input prices for the downstream leader and the downstream follower sequentially. If there are two-part tariff input prices, the reversal result under sequential pricing may occur under quantity competition but not under price competition.