What is Stackelberg model in economics?
The Stackelberg leadership model is a strategic game in economics in which the leader firm moves first and then the follower firms move sequentially.
What is difference between the Cournot and Stackelberg models of oligopoly?
In a Cournot duopoly, firms make their moves at the same time while in Stackelberg duopoly, one firm becomes the leader and so make the first move, followed by the other firm.
What are the three models of oligopoly?
We have now covered three models of oligopoly: Cournot, Bertrand, and Stackelberg. These three models are alternative representations of oligopolistic behavior. The Bertand model is relatively easy to identify in the real world, since it results in a price war and competitive prices.
What is the model of oligopoly?
Cournot’s model of oligopoly is one of the oldest theories of the behaviour of the individual firm and relates to non-collusive oligopoly. In Cournot model it is assumed that an oligopolist thinks that his rival will keep their output fixed regardless of what he might do.
What is the outcome of Stackelberg model?
The Stackelberg model is a leadership model that allows the firm dominant to set its price first. Subsequently, the follower firms optimize their production and cost.
What is the Stackelberg equilibrium?
Stackelberg equilibrium is a solution concept that describes optimal strategies to commit: Player 1 (the leader) first commits to a strategy that is publicly announced, then Player 2 (the follower) plays a best response to the leader’s commitment.
Why is Stackelberg more efficient than Cournot?
Stackelberg markets yield, regardless of the matching scheme, higher outputs than Cournot markets and, thus, higher efficiency. For Cournot markets, we replicate a pattern known from previous experiments. There is stable equilibrium play under random matching and partial collusion under fixed pairs.
What is first mover advantage in Stackelberg model?
The first mover advantage is similar to the Stackelberg model of oligopoly, where the leader firm had an advantage over the follower firm. In many oligopoly situations, it pays to go first by entering a market before other firms.
What is the outcome of the Stackelberg model?
Why does the leader in a Stackelberg oligopoly have a higher profit?
Since other firms must set their output decision given the leader’s output decision, the leader in a Stackelberg oligopoly typically has a bigger market share and higher profit than other firms in the oligopoly. There are two versions of Bertrand model depending on whether the products are homogeneous or differentiated.
What is the Stackelberg model in economics?
What is the Stackelberg Model? 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. It was formulated by Heinrich Von Stackelberg in 1934.
What is the Stackelberg model of duopolies?
This model was developed by the German economist Heinrich von Stackelberg and is an extension of Cournot’s model. It is assumed, by von Stackelberg, that one duopolist is sufficiently sophisticated to recognise that his competitor acts on the Cournot assumption.
What are the models of oligopoly?
An oligopoly is a market structure characterized by significant interdependence. Common models that explain oligopoly output and pricing decisions include cartel model, Cournot model, Stackelberg model, Bertrand model and contestable market theory.