The Algebra of the Stackelberg Model § Since the follower reacts to the leader’s output, the follower’s output is determined by its reaction function § The Stackelberg leader uses this reaction function to determine its profit maximizing output level, which simplifies to ( … We compare an m-firm Cournot model with a hierarchical Stackelberg model where m Firms choose outputs sequentially. Stackelberg Model of Duopoly Stackelberg Duopoly Suppose that two rms (Firm 1 and Firm 2) face an industry demand P = 150 Q where Q = q 1 + q 2 is the total industry output. Both rms have the same unit production cost c = 30. The von Stackelberg Leader-Follower Model Heinrich von Stackelberg proposed a model of oligopoly in which one firm, a follower, takes the output of the other firm as given (a Cournot type oligopolist) and adjusts its output accordingly. While the first mover in a Stackelberg duopoly earns more than a Cournot duopolist, this is not necessarily true for m > 2. STACKELBERG OLIGOPOLY MODEL - CHARACTERISTICS 3 There are few firms serving many consumers The firms produce either differentiated or homogeneous products It is sometimes costly for the followers to gather data about the quantity of output produced by the leader Barriers to entry exist An undoubted leader must exist in the market, both for customers and followers Followers are at a An oligopoly consists of a select few companies having significant influence over an industry. ADVERTISEMENTS: The Cournot Model and the Cournot Solution: The first systematic oligopoly model was published by the French economist Antoine Augustin Cournot (1801-77) in 1838. Industries like oil & gas, airline, mass media, auto, and telecom are all examples of oligopolies. The other firm, a leader, takes into account the adjustment which the follower firm will make. Although Cournot’s model was based on some unrealistic assumptions, his method of analysis has been useful for subsequent theoretical development in the areas of duopoly and oligopoly. Stackelberg Model ( ) ( ) 2 2 12 2 1 2 2 2 21 2 * 1 221 () FOC: 0 2 0 ( ) Cournot's reaction function 2 q Max P q q c q a b q q c q It was formulated by Heinrich Von Stackelberg in 1934. The Assumptions of […] Stackelberg duopoly, also called Stackelberg competition, is a model of imperfect competition based on a non-cooperative game. List q1,q2,q3. 3 Industrial Organization- Matilde Machado Stackelberg Model 5 3.3. 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. Find the equilibrium and outcome of Stackelberg's oligopoly game. Generally in oligopoly competition, it is assumed that there are a fixed number of firms and no new entry; all firms produce homogenous product in a single period and have constant marginal cost c. In the Cournot model, firms choose the quantities to produce and prices adjusted along to clear the market. The Stackelberg equilibrium price is lower, so output and total surplus are higher; total profits are lower. The answer has been stated as (8,4,2) I understand that we're supposed to use the Best Response functions of the other firms and then move sequentially by first solving the subgame of length 1. 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