Pricing Patterns as Outcomes of Product Positions

Prior empirical work shows that different markets are characterized by different pricing patterns, such as Bertrand-Nash pricing or Stackelberg leader-follower pricing. We consider a duopolistic market where ex ante identical firms sequentially position their products prior to competing on prices (in a single- or multiperiod setting) and show that the unique equilibrium outcome involves (i) firms choosing Stackelberg pricing over Bertrand-Nash pricing; and (ii) the positioning first mover acting as the price leader. An attractive property of this model is that the ex post larger firm acts as the price leader, which is consistent with prior empirical evidence