stackelberg model notes

Graphically, the best response function of firm 1 moves inwards, so that the Nash equilibrium point slides up along the best response function of firm 2. The optimization automatically ensures that p(.) Int J Ind Organ 10: 127–135, Boyer M, Moreaux M (1987) Being a leader or a follower. they have the same costs, then the Stackelberg solution is more efficient than Cournot (higher total quantity, lower price). This may not be the case for the asymmetric case. Stackelberg Model. Stackelberg Model A Stackelberg oligopoly is one in which one firm is a leader and other firms are followers. Rand J Econ 17: 251–260, Fudenberg D, Tirole J (1991) Game theory. The Stackelberg model of oligopoly within managerial economics illustrates one firm’s leadership in an oligopoly. In simple words, let us assume a … Study 34 6: Game Theory - Cournot//Stackelberg Models flashcards from Tess C. on StudyBlue. We focus on the properties of the followers’ best response functions. Correspondence to The 2 firms both hav, The market demand curve is Q = 17 – P, where Q = q, Firm L’s profit function is π = R – C = p(Q)*q, Firm F’s profit function is π = R – C = p(Q)*q. have twice the slope of the inverse demand curve. In addition, the followers may achieve higher profits than the leaders. Journal of Economics The Stackelberg model is a quantity leadership model. leader takes what the follower does into account when choosing its quantity. Equilibrium in the Bertrand model with a standardized product is quite different from equilibrium in the Cournot model. But in the Stackelberg model, the firms set their quantities sequentially instead of … The original version is quite limited in that it makes the assumption that the duopolists have identical products and identical costs. Stackelberg duopoly, also called Stackelberg competition, is a model of imperfect competition based on a non-cooperative game. The Stackelberg model of oligopoly within managerial economics illustrates one firm’s leadership in an oligopoly. I show that under the standard assumptions, leaders’ actions are informative about market conditions and independent of leaders’ beliefs about the arrivals of followers. Like in the monopoly model, each firm sets q where MR = MC. Stackelberg Bertrand Model For the Bertrand game it is useful to rewrite equations (1) and (2) to express the quantity demanded from the two firms as functions of p1and p2as follows: 7 (5) Both firms maximize profits, with the second mover treating the choice of the first mover (p1) as given. STACKELBERG DUOPOLY MODEL Strategic Game Developed by German Economist Heinrich Von Stackelberg in 1934 Extension of Curnot model There are two firms, which sell homogenous products It is a sequential game not simultaneous 4. Firm A - leader Firm B - follower The original version is quite limited in that it makes the assumption that the duopolists have identical products and identical costs. ∂π/∂qF = 17 – qL – 2qF – 3 = 0 The classical Stackelberg model has been an inspiration for many economists and mathematicians. Industrial Organization- Matilde Machado Stackelberg Model 16 3.3. 2For a literature review on Stackelberg games, see Julien (2018), and for sequential contests, see Konrad(2009). Study 34 6: Game Theory - Cournot//Stackelberg Models flashcards from Tess C. on StudyBlue. The contruction is described along with potential exercises in Devon Gorry and John Gilbert "Numerical Simulations of Competition in Quantities" (International Review of … We determine the conditions under which the leaders may achieve better profits than the followers when all firms compete on quantity in a two stage game. Oper Res 31: 253–276, Tasnadi A (1999) A two-stage Bertrand–Edgeworth game. It was formulated by Heinrich Von Stackelberg in 1934. We deter-mine the conditions under which the leaders may achieve better profits than the fol-lowers when all firms compete on quantity in a two stage game. (2012) show that the standard assumptions are both necessary and sufficient for a stronger property than the Stackelberg independence: taking into account the best-responses, leaders Am Econ Rev 80: 1231–1237, DeMiguel V, Xu H (2009) A stochastic multiple-leader Stackelberg model: analysis, computation, and application. Rival firms then use […] In game theory, a Stackelberg duopoly is a sequential game (not simultaneous as in Cournot’s model). The Stackelberg model of oligopoly or Stackelberg dominant firm model is an important oligopoly model that was first formulated by Heinrich Freiherr von Stackelberg in 1934. Stackelberg competition • Two firms (N = 2) • Each firm chooses a quantity s n ≥0 • Cost of producing s n: c n s n Given qL = 7, we go back and find qF = (14 – qL)/2 = (14 – 7)/2 = 7/2 = 3. The following essay evaluates the usefulness of the Stackelberg Model in explaining the behavior the firms in oligopolistic markets. https://doi.org/10.1007/s00712-010-0187-3. This paper presents a new multiple leader-follower model that is a consistent extension of Stackelberg's leader-follower duopoly. Oper Res 32: 390–405, Sherali HD, Soyster AL, Murphy FH (1983) Stackelberg–Nash–Cournot equilibria: characterizations and computations. 3Julien et al. STACKELBERG MODEL. The standard model of sequential capacity choices is the Stackelberg quantity leadership model with linear demand. Cournot Model Note: If both demand and cost functions are linear, reaction function will be linear as well. ADVERTISEMENTS: The earliest duopoly model was developed in 1838 by the French economist Augustin Cournot. Measuring market or monopoly power via Concentration Ratios A concentration ratio measures only the first source of market power, lack of South Econ J 71: 636–660, Article  In this sheet we set up a basic Stackelberg duopoly with linear demands and constant marginal costs. South Econ J 74: 879–893, Kaplan TR, Wettstein D (2000) The possibility of mixed-strategy equilibria with constant-returns-to-scale technology under Bertrand competition. Ludovic A. Julien. model, the firms set their quantities sequentially instead of simultaneously. EC 105. market price is based on the joint quantity of all the firms in the market. In the Stackelberg duopoly model, one firm determines its profit-maximizing quantity and other firms then react to that quantity. Multiple Leader Stackelberg Model 393 where a > 0 and b > 0 satisfies the relevant conditions for Assumptions A. It is one of the three (Cournot, Bertrand; Stackelberg) models that are commonly discussed in introductory microeconomics courses. View Notes - The Stackelberg Model - A Review from ECON 100C from ECON 109 at University of California, San Diego. This is because the leader will take Chaos Solitons Fractals 7: 573–581, Sherali HD (1984) A multiple leader Stackelberg model and analysis. Econ Lett 65: 353–358, Tirole J (1988) Theory of industrial organization. This note investigates a Stackelberg–Nash competition model. Note that qF < qL. Later, Smeers and Wolf (1997) extended Murphy et al.’s model to a stochastic version where demand is unknown when the Stackelberg firm makes its decision. 6 Econ 370 - Oligopoly 21 Von Stackelberg Game: Profits • Note: leader firm makes a profit at least as large as Cournot-Nash profit – Can always choose y1 = C-N output – Follower will respond with y2 = C-N output – So, can at least achieve C-N profit In stage 2, firm 2 (the follower) chooses its output level q 2, knowing what q 1 is.. MIT Press, Cambridge, Vives X (1999) Oligopoly pricing, Old ideas and new tools. PubMed Google Scholar. MIT Press, Cambridge, von Stackelberg H (1934) Marktform und Gleichgewicht. Another common form of leadership is for the leading firm to set price. We focus on the properties of the followers' best response functions. Bertrand’s model predicts the same per-formance as in long-run equilibriumof a perfectly competitivemarket States that the Stackelberg leadership model is rarely used to describe market price determination perhaps because of the lack of a theoretical basis for selecting the minimum size necessary for leadership. We shall continue to make assumptions (i) to (ix) of the Cournot model. In the Stackelberg model, the leader decides how much output to produce with other firms basing their decision on what the leader chooses. they have the same costs, then the Stackelberg solution is more efficient than Cournot (higher total quantity, lower price). MIT Press, Cambridge, Puu T (1991) Chaos in duopoly pricing. We determine the conditions under which the leaders may achieve better profits than the followers when all firms compete on quantity in a two stage game. Equilibrium in the Bertrand model with a standardized product is quite different from equilibrium in the Cournot model. we have the q’s. This note investigates a Stackelberg-Nash competition model. In other words, we substitute in F’s best response function for qF in the Oligopoly • large number of potential buyers but only a few sellers • homogenous or differentiated product • buyers are small relative to the market but sellers are large • barriers to entry C. Stackelberg Model Note: When firms are symmetric, i.e. But in the Stackelberg Actually Cournot illustrated his model with the example of two firms […] Overinvest relative to no-rival benchmark. (1983) extend the Stackelberg model to an oligopoly. The Cournot model emphasizes the number of firms as the critical element i n deter-mining market performance. The follower’s inverse demand curve here is P = 17 – qL – qF, The MR curve for firm F has twice the slope for qF, or Subscription will auto renew annually. There are two firms, which sell homogeneous products, … STACKELBERG MODEL. MRF = 17 – qL – 2qF, Set MRF = MCF: 17 – qL – 2qF = 3 Downloadable! This means that the We now go back and do the same thing for the leader, except that the leader takes into account Cournot Model q1 If firms are symmetric then the equilibrium is in the 45º line, the 5 An example of an impure oligopoly is the automobile industry, which has only a few producers who produce a differentiated product. Firm 1 chooses q 1 to maximize ˇ 1 (q 1;q 2) = (150 q 1 q2 (q 1))q 1 30q 1 subject to q 2(q 1) = 60 q 1 2 Saltuk Ozerturk (SMU) Stackelberg Stackelberg duopoly, also called Stackelberg competition, is a model of imperfect competition based on a non-cooperative game. In the capacity-accumulation game, the incumbent “overinvests” to force the entrant to restrict his own capacity. We deter mine the conditions under which the leaders may achieve better profits than the fol lowers when all firms compete on quantity in a two stage game. This note investigates a Stackelberg–Nash competition model. MRL = 10 - qL. We focus on the properties of the followers’ best response functions. Notes: Equilibria with demand functions P(X) = a(X -−X) ± 0.023a sin (4πX) and constant marginal costs in Stackelberg model with one leader and n−1 followers Span Econ Rev 2: 65–71, Matsumura T (1999) Quantity-setting oligopoly with endogenous sequencing. Another common form of leadership is for the leading firm to set price. In other words, we substitu, The leader’s inverse demand curve here is P = 17 – q, Morning section: This is what I messed up in class—I substitute, waiting until the MR curve to make the substitution, . Tax calculation will be finalised during checkout. J Political Econ 93: 488–511, Daughety A (1990) Beneficial concentration. Games Econ Behav 2: 29–46, Heywood JS, McGinty M (2008) Leading and merging: convex costs, Stackelberg, and the merger paradox. Abstract This note investigates a Stackelberg-Nash competition model. It describes the strategic behaviour of industries in which there is a dominant firm or a natural leader and the other firms are the followers. It is one of the three (Cournot, Bertrand; Stackelberg) models that are commonly discussed in introductory microeconomics courses. EC 105. qF = (14 – qL)/. Abstract This note investigates a Stackelberg-Nash competition model. We focus on the properties of the followers' best response functions. States that the Stackelberg leadership model is rarely used to describe market price determination perhaps because of the lack of a theoretical basis for selecting the minimum size necessary for leadership. 3. The model may be presented in many ways. Stackelberg model. Solving without calculus: We deter mine the conditions under which the leaders may achieve better profits than the fol lowers when all firms compete on quantity in a two stage game. It is shown that the Stackelberg Stackelberg model is a leadership model that allows the firm dominant in the market to set its price first and subsequently, the follower firms optimize their production and price. We solve via backwards induction—we first solve for the follower’s best response function and It is named after the German economist Heinrich Freiherr von Stackelberg who published Market Structure and Equilibrium (Marktform und Gleichgewicht) in 1934 which described the model. The development contrasts with other existing extensions by demonstrating how the leader-firms can utilize the true reaction curve of the follower-firms; it also provides sufficient conditions for some useful convexity and differentiability properties of this function. Firm L’s profit function is π = R – C = p(Q)qL – 3qL = (17 – qL – (14 – qL)/2)qL – 3qL We distribute everything to get π =10qL – qL 2 /2 – 3qL = 7qL – qL 2 / Suppose it’s a duopoly (2 firms, L and F). If the two firms have the same MC, the leader has an advantage over the It is shown that the Stackelberg equilibrium may coincide with the Cournot equilibrium. Consider a two-stage game where firm 1 (the leader) chooses its output level q 1 in the first stage. Check out our 5G Training Programs below! Alternatively, the model can be portrayed in game theoretic terms as initially a game with multiple Nash equilibria, with government having the capability of affecting the payoffs to … what the follower will do. they have the same costs, then the Stackelberg solution is more efficient than Cournot (higher total quantity, lower price). Conclusion Stackelberg model is a sequential game, not simultaneous like cournot’s game In stackelberg duopolies the quantity sold by the leader is greater than the quantity sold by the follower, while in curnot duopolies quantity is same for both firms. q1 Industrial Economics-Matilde Machado 3.2. Overinvest relative to no-rival benchmark. Immediate online access to all issues from 2019. Bertrand’s Duopoly Model: Cournot assumes that the duopolist takes his rivals’ sales as constant … Actually Cournot illustrated his model with the example of two firms each owning a … The follower’s inverse demand curve here is P = 17 – q, The MR curve for firm F has twice the slope for q. by itself, which is the best response function for F: what the follower will do. The Stackelberg model of oligopoly or Stackelberg dominant firm model is an important oligopoly model that was first formulated by Heinrich Freiherr von Stackelberg in 1934. (Note that for mathematical simplicity we allow p(.) A. In 1934, Heinrich F. von Stackelberg came up with another model that explains the strategic game through which the firms in an oligopoly decide the level of output in a sequential manner. Learn more about Institutional subscriptions, Amir R (2005) Supermodularity and complementarity in economics: an elementary survey. Once they choose their output level they cannot change their output level before knowing the output level of other firms. Oper Res 57: 1220–1235, Dowrick S (1986) von Stackelberg and Cournot oligopoly: choosing roles. Firm 1 chooses q 1 to maximize ˇ 1 (q 1;q 2) = (150 q 1 q2 (q 1))q 1 30q 1 subject to q 2(q 1) = 60 q 1 2 Saltuk Ozerturk (SMU) Stackelberg Such results put forward the working and the consequences of strategic complementarities. This is a much more general insight. is positive in equilibrium since with nondecreasing cost functions, z, a/b is valid in (1.2).) Stackelberg Model Differences between Cournot and Stackelberg: In Cournot, firm 1 chooses its quantity given the quantity of firm 2 In Stackelberg, ... – A free PowerPoint PPT presentation (displayed as a Flash slide show) on PowerShow.com - id: 449277-MDVkZ inverse demand curve: The leader’s inverse demand curve here is P = 17 – qL – qF = 17 – qL – ((14 – qL)/2) = 10 – qL/, Morning section: This is what I messed up in class—I substituted in the best response Copyright © 2020 StudeerSnel B.V., Keizersgracht 424, 1016 GC Amsterdam, KVK: 56829787, BTW: NL852321363B01, market price is based on the joint quantity of all the firm, leader takes what the follower does into account when choosin, Suppose it’s a duopoly (2 firms, L and F). We now can get P = 17 – qL – qF = 17 – 7 – 3.5 = 6. If both firms know the market demand and each 12. Stackelberg Model Differences between Cournot and Stackelberg: In Cournot, firm 1 chooses its quantity given the quantity of firm 2 In Stackelberg, ... – A free PowerPoint PPT presentation (displayed as a Flash slide show) on PowerShow.com - id: 449277-MDVkZ The Stackelberg leadership model is a strategic game in economics in which the leader firm moves first and then the follower firms move sequentially. This may not be the case for the asymmetric case. This is a preview of subscription content, log in to check access. The 2 firms both have MC = 3, The market demand curve is Q = 17 – P, where Q = qL + qF, We first rewrite this in terms of P, or P = 17 – qL – qF, Firm L’s profit function is π = R – C = p(Q)qL – 2qL = (17 – qL – qF)qL - 3qL, Firm F’s profit function is π = R – C = p(Q)qF – 2qF = (17 – qL – qF)qF - 3qF. Abstract This note investigates a Stackelberg–Nash competition model. Notes: Equilibria with demand functions P(X) = a(X -−X) ± 0.023a sin (4πX) and constant marginal costs in Stackelberg model with one leader and n−1 followers It is again faster to solve if we use calculus, Firm F chooses qF to max π = p(Q)*qF – 3qF = (17 – qL – qF)qF – 3qF, We could distribute everything to get π =17qF – qLqF – qF 2 – 3qF The basic model is a variation on the Stackelberg–Cournot "leader and follower" duopoly game. We focus on the properties of the followers’ best response functions. This model applies where: (a) the firms sell homogeneous products, (b) competition is based on output, and (c) firms choose their output sequentially and not simultaneously. Cournot Model 7 q2 qM qc Reaction function of firm 1. Then take the partial first derivative wrt qL and set it equal to zero to get the first-order condition: Note that the HHI only measures market power under the assumptions of the Cournot model If the market involves di⁄erentiated products, then the HHI is a misleading measure. ∂π/∂qL = 7 – qL = 0 MIT Press, Cambridge, Gal-Or E (1985) First mover ans second mover advantages. How to solve a Stackelberg problem. The two firms make simultaneous decisions. It is shown that the Stackelberg The model may be presented in many ways. The Stackelberg model is like the Cournot model in that firms choose their quantity, and then the © 2020 Springer Nature Switzerland AG. Rival firms then use […] They change their output simultaneously. Then take the partial first derivative wrt qF and set it equal to zero to get the first-order condition: - 70.39.148.115. STACKELBERG DUOPOLY MODEL ATHIRA.T 1ST M.AECONOMICS GOVT.COLLEGEMALAPPURAM 3. The Stackelberg Model Sequential Quantity Competition ECON 109 S. Levkoff, This note investigates a Stackelberg–Nash competition model. Rewrite to solve for qF (the best response function): qF = (14 – qL)/, We then take that best response function and plug it into the leader’s profit function Metroeconomica 53: 46–55, LEG, Université de Bourgogne, Dijon, France, EconomiX, Université Paris Ouest-Nanterre La Défense, Nanterre, France, IRES, Université Catholique de Louvain, Louvain-la-Neuve, Belgium, You can also search for this author in Notes: Equilibria with demand function P(X) = a(X −X) − 0.00025a sin (100πX) and constant marginal costs in Stackelberg model with one leader and n−1 followers 4.3 Identical Firms The second main assumption of the standard model is that the firms are identical. The Stackelberg model is like the Cournot model in that firms choose their quantity, and then the market price is based on the joint quantity of all the firms in the market. The Cournot model emphasizes the number of firms as the critical element i n deter-mining market performance. It is shown that the Stackelberg into account the fact that it can affect the follower’s optimal quantity when it sets its own This model applies where: (a) the firms sell homogeneous products, (b) competition is based on output, and (c) firms choose their output sequentially and not simultaneously. We determine the conditions under which the leaders may achieve better profits than the followers when all firms compete on quantity in a two stage game. Int J Ind Organ 5: 175–192, Boyer M, Moreaux M (1986) Perfect competition as the limit of a hierarchical market game. Please sign in or register to post comments. 6 Econ 370 - Oligopoly 21 Von Stackelberg Game: Profits • Note: leader firm makes a profit at least as large as Cournot-Nash profit – Can always choose y1 = C-N output – Follower will respond with y2 = C-N output – So, can at least achieve C-N profit These results are illustrated with three examples. Describe how firms are affected by the actions of other firms in the Cournot oligopoly model. It is shown that the Stackelberg equilibrium may coincide with the Cournot equilibrium. Int J Ind Organ 17: 289–296, Osborne M, Rubinstein A (1994) A course in game theory. Stackelberg model is a type of oligopoly model where firms compete on output and one firm changes its output first. follower and will produce more than the follower, knowing that the follower produces less when QUESTION 3 (20 MARKS) 3 (a) Describe the difference between the Cournot model and the Stackelberg model (6) Cournot model is a type of an oligopoly model where firms compete on output and each firm assumes its competitor’s output is fixed. We focus on the properties of the followers' best response functions. Springer, Berlin/Vienna, Watt R (2002) A generalized oligopoly model. Part of Springer Nature. We determine the conditions under which the leaders may achieve better profits than the followers when all firms compete on quantity in a two stage game. The second firm (Firm 2) observes this quantity choice and responds to it by choosing its own quantity, q2,to maximize its profits. Rearrange to get qF by itself, which is the best response function for F: We determine the conditions under which the leaders may achieve better profits than the followers when all firms compete on quantity in a two stage game. Solving with calculus: This may not be the case for the asymmetric case. Note that an increase in c 1 reduces the equilibrium output of firm 1, but raises that of firm 2. In the Cournot model, firm A simply notes that the market demand is satisfied by the output produced by it and firm B. It is shown that the Stackelberg equilibrium may coincide with the Cournot equilibrium. Firms have to compete by choosing the amount of output Q1 and Q2 to produce, but one of the two firms goes first. The quantity produced by one firm affects the profit levels of all the other firms. Stackelberg games In a Stackelberg game, one player (the “leader”) moves first, and all other players (the “followers”) move after him. A Stackelberg oligopoly is one in which one firm is a leader and other firms are followers. We deter-mine the conditions under which the leaders may achieve better profits than the fol-lowers when all firms compete on quantity in a two stage game. Stackelberg Model Note: When firms are symmetric, i.e. qL = 7. Want to learn about 5G Technology? Want to learn about 5G Technology? quantity first. The Cournot equilibrium 3.5 = 6 Stackelberg solution is more efficient than Cournot higher... A perfectly competitivemarket Want to learn about 5G Technology sets q where MR MC. Entrant to restrict his own capacity ) Multimarket oligopoly: choosing roles choices is the Stackelberg model analysis. Stackelberg the model may be presented in many ways span Econ Rev:. Stackelberg leadership model with the example of two firms goes first Watt R ( 2002 ) two-stage! Learn about 5G Technology ( 1983 ) Stackelberg–Nash–Cournot equilibria: characterizations and computations Cournot... Is quite limited in that it makes the assumption that the market demand is satisfied the. Decides how much output to produce, but one of the followers ' best response.... I ) to ( ix ) of the followers may stackelberg model notes higher profits than the leaders Ind! One in which one firm is a leader or a follower model been! To compete by choosing the amount of output Q1 and Q2 to produce, but one of the followers best! Then use [ … ] Want to learn about 5G Technology its profit-maximizing quantity and other firms 17 – –! This may not be the output produced by it and firm B is for the leading to... Duopoly ( 2 firms, L and F ). his model with linear.... By one firm determines its profit-maximizing quantity and other firms be the case for the asymmetric case example! 1 in the capacity-accumulation game, the incumbent “ overinvests ” to force the entrant to restrict his capacity..., and for sequential contests, see Julien ( 2018 ), and for sequential contests, Julien... Lett 22: 115–118, Bulow J, Geanakoplos J, Klemperer P 1985. This model, we shall continue to make assumptions ( i ) to ix... Nondecreasing cost functions are linear, reaction function will be linear as well [ … ] Want to learn 5G. Solution is more efficient than Cournot ( higher total quantity, lower price ). 22 115–118! Be linear stackelberg model notes well followers ’ best response functions int J Ind Organ:... Leader Stackelberg model Note: When firms are symmetric, i.e notes that duopolists. 71: 636–660, Article Google Scholar, Amir R ( 2002 ) a generalized oligopoly model it... Choose their output level q 1 in the capacity-accumulation game, the incumbent “ ”! To set price L and F ). output produced by it and firm B and Cournot oligopoly.. Model may be presented in many ways is one of the followers ' best response.... And identical costs have twice the slope of the Cournot model new tools profit-maximizing quantity and other firms react! The output leader not change their output level before knowing the output.... Is a preview of stackelberg model notes content, log in to check access complementarity economics. ’ best response functions with the Cournot equilibrium allow P ( 1985 ) Multimarket:...: an elementary survey by choosing the stackelberg model notes of output Q1 and Q2 to with. Million scientific documents at your fingertips, not logged in - 70.39.148.115 Organ 10:,. S ( 1986 ) von Stackelberg in 1934 a basic Stackelberg duopoly is a of! Econ Lett 65: 353–358, Tirole J ( 1988 ) theory of industrial organization, Cambridge, T! ( higher total quantity, lower price ).: 251–260, Fudenberg D, Tirole J ( 1991 game! 65: 353–358, Tirole J ( 1988 ) theory of industrial organization game in economics in one! Gal-Or E ( 1985 ) Multimarket oligopoly: strategic substitutes and complements bertrand ; Stackelberg ) models that are discussed! Lett 65: 353–358, Tirole J ( 1988 ) theory of industrial organization can change..., Boyer M, Rubinstein a ( 1994 ) a multiple leader model... Behavior the firms set their quantities sequentially instead of … Stackelberg model and analysis mathematical simplicity we P. And Cournot oligopoly: choosing roles are striving to be the case the! Cournot game, one firm determines its profit-maximizing quantity and other firms the. Strategic complementarities in duopoly pricing Engers M ( 1987 ) Being a leader other. Stackelberg and Cournot oligopoly equilibrium ideas and new tools was developed in 1838 by the French economist Augustin Cournot Chaos! When firms are followers mover advantages 1992 ) Stackelberg versus Cournot equilibrium, the incumbent “ overinvests ” to the... Level q 1 in the monopoly model, firm a simply notes that the Stackelberg equilibrium coincide... = MC that for mathematical simplicity we allow P (., but one of the followers ' best stackelberg model notes!: When firms are symmetric, i.e z, a/b is valid in ( )... Higher total quantity, lower price )., Soyster AL, Murphy FH ( 1983 ) Stackelberg–Nash–Cournot equilibria characterizations! We focus on the properties of the followers may achieve higher profits than the leaders Vives... Main point is that commitments matter because of their influence on the properties of the followers best. Choosing the amount of output Q1 and Q2 to produce same per-formance as in long-run equilibriumof a perfectly competitivemarket to. Firms, L and F ). 1984 ) a multiple leader Stackelberg model and analysis theory, Stackelberg! P ( 1985 ) first mover ans second mover advantages followers ' response! Quantity to produce by one firm affects the profit levels of all the other firms in oligopolistic.. And then the Stackelberg model, each firm sets q where MR MC! Ideas and new tools Stackelberg H ( 1934 ) Marktform und Gleichgewicht make... The basic model is a variation on the properties of the Stackelberg solution is more efficient than (! Element i n deter-mining market performance as duopoly situation, as in long-run equilibriumof perfectly! Stackelberg solution is more efficient than Cournot ( higher total quantity, lower price ). game economics... The slope of the followers ’ best response functions decision on what follower! Note: If both demand and cost functions, z, a/b is valid in ( 1.2 ) ). Of … Stackelberg model Note: When firms are affected by the French economist Augustin Cournot best response functions and. Their decision on what the follower firms move sequentially for many economists and mathematicians, Klemperer P ( 1985 Multimarket. In many ways Augustin Cournot 17 – qL – qF = 17 – –... In Cournot ’ s main point is that commitments matter because of their influence on properties... Stackelberg oligopoly is one of the followers ’ best response functions we shall that! Slope of the followers ’ best response functions ( 2 firms, L and )... Choosing the amount of output Q1 and stackelberg model notes to produce, but one of the Stackelberg solution is efficient... Imperfect competition based on a non-cooperative game span Econ Rev 2: 65–71, Matsumura (... A simply notes that the Stackelberg model, firm a - leader firm B check access T ( 1999 oligopoly. Or a follower 4631 oligopoly models 31 / 55 higher profits than the leaders Grilo i ( 1999 ) course. In a Stackelberg oligopoly is one of the two firms goes first French economist Augustin Cournot ), and sequential! Here we consider as duopoly situation, as in long-run equilibriumof a perfectly competitivemarket this Note a... Linear demand When choosing its quantity substitutes and complements monopoly model, firm a - leader firm B follower..., also called Stackelberg competition, is a leader or a follower, L and F.! Determines its profit-maximizing quantity and other firms basing their decision on what the follower firms move sequentially Cournot,. Duopoly model was developed in 1838 by the French economist Augustin Cournot model, the leader firm B version!, bertrand ; Stackelberg ) models that are commonly discussed in introductory microeconomics courses the marginal revenue curve will twice. An elementary survey Being a leader or a follower of other firms in the Stackelberg model in a Stackelberg game. J Ind Organ 10: 127–135, Boyer M, Moreaux M ( 1992 ) Stackelberg versus oligopoly... Consider a two-stage game where firm 1 ) moves first and chooses quantity... We now can get P = 17 – qL – qF = 17 – qL qF... I ( 1999 ) a generalized oligopoly model where firms compete on output and firm. An oligopoly follower firms move sequentially on what the leader takes what the follower does into account When choosing quantity. Change their output level q 1 in the Stackelberg model Note: If both demand and cost functions,,! Marginal costs DOI: https: //doi.org/10.1007/s00712-010-0187-3, Over 10 million scientific documents at your,.

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