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.
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 difference between Cournot and Stackelberg?
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.
Is the Stackelberg equilibrium A Nash equilibrium?
The Stackelberg model can be solved to find the subgame perfect Nash equilibrium or equilibria (SPNE), i.e. the strategy profile that serves best each player, given the strategies of the other player and that entails every player playing in a Nash equilibrium in every subgame.
What type of market is the Stackelberg model?
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.
In what sense is Stackelberg equilibrium different from Cournot equilibrium?
The difference between Cournot and Stackelberg equilibrium is that Cournot equilibrium ischosen in a way that each firm maximizes their profit. In Stackelberg equilibrium, only onefirm maximizes their profits.
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.
Why is Stackelberg output higher than Cournot?
The main results of the comparison are that (for a given number of firms, m) the equilibrium price is unambiguously higher in the Cournot case. The Stackelberg equilibrium is more competitive since each firm (save the last mover) selects a high output in order to induce subsequent movers to cut back.
Is Cournot or Stackelberg more efficient?
Stackelberg markets yield, regardless of the matching scheme, higher outputs than Cournot markets and, thus, higher efficiency.
What is Cournot equilibrium?
The basic Cournot assumption is that each firm chooses its quantity, taking as given the quantity of its rivals. The resulting equilibrium is a Nash equilibrium in quantities, called a Cournot (Nash) equilibrium. Context: The Cournot model provides results which are of some importance to industrial economics.