STACKELBERG DUOPOLY MODEL Strategic Game Developed by German Economist Heinrich Von Stackelberg in 1934 Extension of Curnot model There are two firms, which sell homogenous products It is a sequential game not simultaneous 4. According to the law of supply and demand, a high level of output results in a relatively low price, whereas a lower level of output results in a relatively higher price. Both rms have the same unit production cost c = 30. Stackelberg Model: Stackelberg’s equilibrium is mainly based on Stackelberg’s theory of competition, which tells us that two or more companies compete in order to completely dominate the market. The companies in a duopoly tend to compete against one another, reducing the … This video discusses about the Stackelberg Duopoly model in Hindi language. This price decrease will then lead the smaller firms to decrease output or exit the industry. • Compared to perfect competition – Firms face downward sloping demand and thus can choose their price. . 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. The reaction as a function of q1 (blue lines) is as follows: Firm 1 (leader) anticipates the follower’s behavior and takes it into consideration to make the strategic choice of q1: Therefore, the quantities sold by each firm at equilibrium are: The perfect equilibrium of the game is the Stackelberg equilibrium. In the Stackelberg model of duopoly, one firm serves as the industry leader. In Section 3, the existence and stability of equilibrium points in the dynamical system are analyzed, and the stable regions are also calculated. In this paper, a duopoly Stackelberg model of competition on output with stochastic perturbations is proposed. Thus, the competitive firms have no incentive to lower the price. -Stackelberg’s model is a sequential game, Cournot’s is a simultaneous game; -In Stackelberg duopolies, the quantity sold by the leader is greater than the quantity sold by the follower, while in Cournot duopolies quantity is the same for both firms; -When comparing each firm’s output and prices, we have: -With regard to total output and prices we have the following: QC: total Cournot output The Stackelberg leadership model is a sequential model, which means that the dominant firm first sets the price, which is then used by the other firms to determine their optimal production. The other companies then take this price as given and set the own output. PM: monopoly price To find the Nash equilibrium of the game we need to use backward induction, as in any sequential game. In particular, the dominant firm will set the price such that marginal cost (MC) equals marginal revenue (MR). One firm, the leader, is perhaps better known or has greater brand equity, and is therefore better placed to decide first which quantity q1 to sell, and the other firm, the follower, observes this and decides on its production quantity q2. Sorry, you have Javascript Disabled! 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. 2. In the context of entry, firm 1 is the established firm, and firm 2 the prospective entrant. If the competitive firms engage in such behavior, they will hurt themselves. There are two primary types of duopolies: the Cournot Duopoly (named after Antoine Cournot) and the Bertrand Duopoly (named after Joseph Bertrand). Since the Stackelberg duopoly game is the most typical and simplest dynamic model in classical oligopoly game theory, we focus on its quantum version here. Now that we know how decisions based on quantities affect the market equilibrium, let’s see what happens when we deal with prices, starting with the Bertrand duopoly. Stackelberg duopoly, also called Stackelberg competition, is a model of imperfect competition based on a non-cooperative game. Also referred to as a “decision tree”, the model shows the combination of outputs and payoffs both firms have in the Stackelberg game Topic 4: Duopoly: Cournot-Nash Equilibrium. The number of firms is restricted to … We investigate Stackelberg mixed duopoly models where a state‐owned public firm and a foreign private firm compete. The Cournot and Stackelberg duopoly theories in managerial economics focus on firms competing through the quantity of output they produce. When it comes to economic efficiency, the result is similar to Cournot’s duopoly model. The classic Stackelberg game is divided into two stages. is a sequential model, which means that the dominant firm first sets the price, which is then used by the other firms to determine their optimal production. Each firm’s quantity demanded is a function of not only the price it charges but also the price charged […] Thus, if firm A makes its decision first, firm A is the industry leader and firm B reacts to or follows firm A’s decision. Stackelberg duopoly. A duopoly is a form of oligopoly, where only two companies dominate the market. Why doesn't the first-mover announce that its production is Q1 = 30 in order to exclude the second firm from the market (i.e., Q2 = … In Section 5, we exerted control on the duopoly Stackelberg game model. The principal difierence between the Cournot model and the Stack- elberg model is that instead of moving simultaneously (as in the Cournot model) the flrms now move sequentially. There are two firms, which sell homogeneous products, and are subject to the same demand and cost functions. In this game, the leader has decided not to behave as in the Cournot’s model, however, we cannot ensure that the leader is going to produce more and make more profits than the follower (production will be larger for the firm with lower marginal costs). A price decrease by one of the smaller competitive firms will lead to a drop in the price by the dominant firm. – The market contains sufficiently few firms that each The Stackelberg leadership model is a model of a duopoly. Bertrand’s Duopoly Model: Cournot assumes that the duopolist takes his rivals’ sales as constant … -. The large market share can be assumed to be the result of greater scale and thus lower costs. In game theory, a Stackelberg duopoly is a sequential game (not simultaneous as in Cournot’s model). See instructions, Present Value of Growth Opportunities (PVGO). There is a competitive numeraire sector whose output is x0. If the competitive firms engage in such behavior, they will hurt themselves. 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.