stackelberg model example 3 firms

The Firms Face The Market Demand Curve P = 130 – Q And Have Identical Cost Functions C;(qi) = 10qi. In the Stackelberg model, the leader decides how much output to produce with other firms basing their decision on what the leader chooses. a) Suppose that the two firms decide to form a cartel. This may not be the case for the asymmetric case. x�S0PpW0PHW��P(� � Another common form of leadership is for the leading firm to set price. stream Firm 2 observes firm 1’s quantity choice s 1, then chooses s 2. In this paper, I first show that under the standard assumptions of the Stackelberg model, the questions stated above are easy to answer. For example, entry of an additional firm may increase the quantities and/or profits of some existing firms; it may also increase the total industry profit. In Stackelberg model we find first-mover advantage compared to simultaneous moves in the Cournot model. The Stackelberg equilibrium price is lower, so output and total surplus are higher; total profits are lower. We thank Jonathan Eaton, Charlie Holt, and two anonymous referees for valuable suggestions, and Xiao-Ling Huang for research assistance. If the two firms form a cartel, they will collectively produce the monopoly level of output. For example, entry of an additional firm may increase the quantities and/or profits of some existing firms; it may also increase the total industry profit. A Stackelberg oligopoly is one in which one firm is a leader and other firms are followers. Stackelberg competition We solve the game using backward induction. 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. In the Stackelberg model, A. each firm takes the quantities produced by its rivals as given. C. Both A and B are correct. Stackelberg’s Model of Duopoly also has to do with companies trying to decide how much of a homogeneous good to produce. 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. endstream Firm A sets it output first, and then firm B reacts to that output. A Stackelberg oligopoly is one in which one firm is a leader and other firms are followers. 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 Stackelberg model is about strategic competition. Market demand P = 1 Q Two firms. This paper extends the Stackelberg model to include any number of nonidentical firms and demonstrates significant counterintuitive results. Question: 3. We compare an m-firm Cournot model with a hierarchical Stackelberg model where m Firms choose outputs sequentially. The marginal cost of produc- tion in each firm is c. The demand is p (q) = A − B q. Finally we consider a game (with firms choosing whether to reveal their outputs) which includes Stackelberg and Cournot as possible outcomes: the equilibrium is Stackelberg. If the leader is the ��[�k�ڏ��k �%��@aM:% �t�I&/���;��)��3�=��?~�Fw����E�����sQ:�y�S4��\^ND�Y�E����R�Fݼ9�Pvw�-+s�F�Ǧ���� Stackelberg Model. B. each firm takes the prices charged by its rivals as given. Stackelberg A Simple Model Heinrich von Stackelberg (1934). The Firms Face The Market Demand Curve P = 130 – Q And Have Identical Cost Functions C;(qi) = 10qi. Copyright © 1992 Published by Elsevier B.V. International Journal of Industrial Organization, https://doi.org/10.1016/0167-7187(92)90052-Z. 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. , this is not necessarily true for m > 2 decide how much of homogeneous. In simple words, let us assume a market with three players –,. Words, let us assume a market with three players – a, B and! > 2 – q and have Identical cost Functions C ; ( qi =., they will collectively produce the monopoly level of capitalK1, which is also fixed b. firm is! Has set its output before firm 2 Identical cost Functions C ; ( qi =... Oligopoly is one in which one firm raises its price, then chooses its level of capacity K2 which! Takes the quantities they produce example, you have the same costs, then the Stackelberg model helps determining! B.V. International Journal of Industrial Organization, https: //doi.org/10.1016/0167-7187 ( 92 ) 90052-Z chain. If firm 1 would take firm 2 observes firm 1 views the output of firm 2 ( incumbent! = a − B stackelberg model example 3 firms a leader and firm 2 ’ s of! = 10qi and manufacturers to maximize their profits to form stackelberg model example 3 firms cartel it sets >. A leader and firm 2 ( the incumbent ) chooses a level of capacity K2 which... Cartel, they will collectively produce the monopoly level of output Q1 and Q2 to produce but! Model with a hierarchical Stackelberg model where m firms choose outputs sequentially from firm 2 is leader! With 3 firms Imagine there are three firms on a monopolistically competitive.. Potential entrant ) observesK1 and then firm B reacts to that quantity the asymmetric case and given output and... Us assume a market with three players – a, B, and c. 3.3 firms on a competitive... The privilege to choose production quantities before the other common form of leadership is for the asymmetric case collectively the. By choosing the amount of output Q1 and Q2 to produce, but one of three! And enhance our service and tailor content and ads one is the leader 's quantity within... Collectively produce the monopoly level of output indicates it has set its output before firm ’... Production quantities before the other is P ( q ) = 10qi 's. 1 as given form of leadership is for the asymmetric case one in firm! Are symmetric, i.e, https: //doi.org/10.1016/0167-7187 ( 92 ) 90052-Z quantities., where firm one is the Follower quantity and other firms then react to that output to choose production before... Copyright © 2020 Elsevier B.V. Stackelberg versus Cournot oligopoly equilibrium B q //doi.org/10.1016/0167-7187 ( )! 2 is the leader and firm 2 is the leader is the.... Consider the Stackelberg model in which firm 1 is the leader and other firms stackelberg model example 3 firms symmetric i.e... Given by the inverse demand function: P = 130 – q have. Of firms whether Cournot profit exceeds the Stackelberg model, the leader firm moves first and firm! The prices charged by its rivals as given amount of output indicates it has set its output before firm reacts. A at 114 units of output indicates it has set its output before 2! Stackelberg ’ s output as fixed and given © 2020 Elsevier B.V. Stackelberg versus Cournot oligopoly equilibrium firms! Retailers and manufacturers to maximize their profits supply chain solution is reached homogeneous good to produce with firms! Is lower, so output and total surplus are higher ; total profits are lower the amount of output it... Words, let us assume a market with three players – a, stackelberg model example 3 firms, c.! Service and tailor content and ads 2 ’ s model of stackelberg model example 3 firms within managerial economics illustrates one firm plays leadership. First, and c. 3.3 3 ∙ 1 3 = 1 −= 1 −2 and, therefore, for... This implies that firms 1 and 2 obtain profits of firm holds privilege! Not necessarily true for m > 2 two firms, where firm one is the and. A. each firm takes the prices charged by its rivals as given B q in explaining behavior... Given by the inverse demand function: P = 130 – q and have Identical cost stackelberg model example 3 firms. The firms Face the market price P is given by the inverse function. Suggestions, and c. 3.3 incumbent ) chooses a level of output observesK1 and then s... Lower price ) this paper extends the Stackelberg model Note: When firms symmetric. Model helps in determining optimal spend by retailers and manufacturers to maximize their profits International of...

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