This recognition allows the sophisticated duopolist to determine the reaction curve of his rival [â¦] You decide on quantity and the market (typically and organized exchange) determine the price. Let QÄ± Be The Output For Firm 1 And 22 The Output For Firm 2. Proposes a model which shows that Stackelberg competition is not necessarily welfareâ enhancing compared with Cournot competition. Stackelberg Model Differences between Cournot and Stackelberg: In Cournot, firm 1 chooses its quantity given the quantity of firm 2 In Stackelberg, firm 1 chooses its quantity given the reaction curve of firm 2 Note: the assumption that the leader cannot revise its decision i.e. We compare an m-firm Cournot model with a hierarchical Stackelberg model where m Firms choose outputs sequentially. An important genesis of this model is that one of the Stackelberg leaders produces more output than it would have produced under the Cournot equilibrium. Similarly, the follower in the Stackelberg model produces less output than that in the Cournot model. In other words, Cournot equilibrium is when firms choose sequential, and Stackelberg is when firms choose equilibrium simultaneously. Cournot is quantity competition. International oil market works this way: OPEC says how much they will produce, and let London and New York exchanges fight over who can pay more for it. Market Demand Is Given By P(Q) = 200 â Q Where As Usual Q = 91 +92. Industrial Organization-Matilde Machado Stackelberg Model 15 3.3. Shows that, although in a simple duopoly model prices in a Stackelberg equilibrium are lower than in a Cournot equilibrium, this is not necessarily true in an entryâdeterrence framework, where postâentry competition is Stackelberg rather than Cournot. Stackelberg is one firms chosing price or quanity before other. Stackelberg equilibrium is attained if and only if firm 1 desires to be a leader and firm 2 a follower. In Stackelberg equilibrium, only one firm maximizes their profits. E.g. It is assumed, by von Stackelberg, that one duopolist is sufficiently sophisticated to recognise that his competitor acts on the Cournot assumption. Abstract. Question: Exercise 3: Stackelberg Vs Cournot Consider An Industry Producing A Homogeneous Good. We compare an n-firm Cournot model with a Stackelberg model, where n-firms choose outputs sequentially, in a stochastic demand environment with private information.The expected total output, consumer surplus, and total surplus are lower, while expected price and total profits are higher in Stackelberg perfect revealing equilibrium than in the Cournot equilibrium. STACKELBERG BEATS COURNOT: ON COLLUSION AND EFFICIENCY IN EXPERIMENTAL MARKETS Steffen Huck, Wieland Mu¨ller and Hans-Theo Normann We report on an experiment designed to compare Stackelberg and Cournot duopoly markets with quantity competition. Comparison with Cournot Model: In Fig. Understanding the Stackelberg Graphically. The difference between Cournot and Stackelberg equilibrium is that Cournot equilibrium is chosen in a way that each firm maximizes their profit. 24.5 we also show Cournot equilibrium point c, where the two reaction curves meet. ADVERTISEMENTS: This model was developed by the German economist Heinrich von Stackelberg and is an extension of Cournotâs model. While the first mover in a Stackelberg duopoly earns more than a Cournot duopolist, this is not necessarily true for m > 2. Many works studied on complex dynamics of Cournot or Stackelberg games, but few references discussed a dynamic game model combined with the Cournot game phase and Stackelberg game phase. Under the assumption that R&D spillovers only flow from the R&D leader to the R&D follower, a duopoly StackelbergâCournot game with heterogeneous expectations is considered in this paper. 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