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Stackelberg Model
Matilde Machado
Slides available from:
http://www.eco.uc3m.es/OI-I-MEI/
2-period model
Same assumptions as the Cournot Model except that
firms decide sequentially.
In the first period the leader chooses its quantity. This
decision is irreversible and cannot be changed in the
second period. The leader might emerge in a market
because of historical precedence, size, reputation,
innovation, information, and so forth.
In the second period, the follower chooses its quantity
after observing the quantity chosen by the leader (the
quantity chosen by the follower must, therefore, be
along its reaction function).
Stackelberg Model
Stackelberg Model
given
Industrial Organization- Matilde Machado
Stackelberg Model
FOC:
2
= 0 a 2bq2 bq1 c = 0
q2
q2* = R2 (q1 ) =
a bq1 c
= Cournot's reaction function
2b
Stackelberg Model
FOC:
1
= 0 a 2bq1 bR2 (q1 ) bq1 R2 (q1 ) c = 0
q1
1
a bq1 c
a 2bq1 b
+ bq1 c = 0
2b
2
1
1
a c
= q1 > q1N =
bq1 = 0 q1 =
2
2
b
2
3b
Stackelberg Model
a c 1 * a c 1 a c ac 3 N
N
q1 =
=
= q2 < q2
2b 2
2b 2 2b 4b 4
a c a c 3( a c) 2 ( a c)
+
=
>
= QN
2b
4b
4b
3b
a>c
3 ( a c ) a + 3c
*
*
p = a bQ = a b
=
>c
4b
4
a + 2c
But p* <
= pN
3
q1* + q2* =
Stackelberg Model
=
8b
9b
4
2b 4 2b
2
(a c)
a + 3c
a c a c a c ( a c )
2* = ( p* c ) q2* =
c
< 2N =
=
=
16b
9b
4
4b 4 4b
2
Stackelberg Model
Stackelberg Model
(a c) q
1
q1
2
q2
q2
= 1 + 2 ;
= 3 <0
q1
q1 q12
q1
2
Stackelberg Model
10
q2
<M=(1/b)((a-c)/2)^2
Isoprofit = M =1
single point
q
Industrial Organization- Matilde Machado
qM
q1
11
Stackelberg Model
dq2
1
= 11
dq1
2
Stackelberg Model
dq2
dq1
=0
q1 = R1 ( q2 )
12
q1S>q1N
qM
q2S<q2N
C
S
qM
Industrial Organization- Matilde Machado
q1
13
Stackelberg Model
qM
C
S
-1
qM
Industrial Organization- Matilde Machado
q1
Stackelberg Model
14
Stackelberg Model
15
Stackelberg Model
16