The Limits of Limited Commitment

TL;DR

This paper analyzes how different limited commitment structures in strategic leadership affect outcomes, showing bounds on leader payoffs and identifying structures that optimize consumer or producer benefits.

Contribution

It characterizes the outcomes of all possible limited commitment structures, revealing bounds and optimal structures in duopoly models.

Findings

Leader's payoff bounded by Stackelberg and Cournot outcomes under interval partitions.

General commitment structures can lead to payoffs below the lowest Cournot payoff.

Identifies commitment structures that optimize consumer and producer outcomes.

Abstract

We study limited strategic leadership. A collection of subsets covering the leader's action space determines her commitment opportunities. We characterize the outcomes resulting from all possible commitment structures of this kind. If the commitment structure is an interval partition, then the leader's payoff is bounded by her Stackelberg and Cournot payoffs. Under general commitment structures the leader may obtain a payoff that is less than her lowest Cournot payoff. We apply our results to a textbook duopoly model and elicit the commitment structures leading to consumer- and producer-optimal outcomes.