Simultaneous vs. Sequential Price Competition with Incomplete Information

We compare the equilibria that result from sequential and simultaneous moves when two firms compete à la Bertrand in a homogeneous-good market. and firms’ unit costs are private information. Alternatively, our setup can be interpreted as a procurement auction with endogenous quantity where the buyer uses a first-price format if moves are simultaneous and she awards one bidder a right of first refusal if moves are sequential. We show that the first mover can be more or less aggressive in the sequential than it would be in a simultaneous game. In addition, in the case of sequential choices there is a second-mover advantage. Finally, we prove that, under some conditions, buyer and total surplus are larger when moves are simultaneous.