stackelberg model of oligopoly pdf

<< << %PDF-1.4 21 0 obj 6 0 obj $#�����Yҵ������� We investigate the (dynamic) stability of a stackelberg oligopoly model of a market of a homogeneous good, with output competition, one Stackelberg leader and a number of identical followers. The Algebra of the Stackelberg Model Since the follower reacts to the leader’s output, the follower’s output is determined by its reaction function The Stackelberg leader uses this reaction function to determine its profit maximizing output level, which simplifies to ( ) 1 2 2 2 1 2b 0.5 Q a c Q r Q − − = = b a c c Q 2 2 2 1 1 + − = 5 0 obj 14 0 obj Stackelberg’s Duopoly 5. >> Stackelberg Model of Duopoly Stackelberg’s Model of Duopoly also has to do with companies trying to decide how much of a homogeneous good to produce. <> ���Pa%�-�.K/P���KN&;����ڕ�8��}�\�����p��. 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. /ColorSpace 3 0 R /Pattern 2 0 R /ExtGState 1 0 R endobj endobj << /Filter /FlateDecode /Length 15 The Stackelberg perfect revealing equilibrium (SPRE) expected total output, consumer surplus, and total surplus are lower while expected price and total profits are higher than the Cournot equilibrium ones. /D [11 0 R /XYZ 10.909 272.126 null] 13 0 obj Stackelberg duopoly, also called Stackelberg competition, is a model of imperfect competition based on a non-cooperative game. << Stackelberg Model Graphically(cont): q2 q’ q’’qM q1 Isoprofit = πM =1 single point π’< πM=(1/b)((a-c)/2)^2 Given q2, firm 1 chooses its best response i.e. 14 0 obj The von Stackelberg Leader-Follower Model Heinrich von Stackelberg proposed a model of oligopoly in which one firm, a follower, takes the output of the other firm as given (a Cournot type oligopolist) and adjusts its output accordingly. Please.consider a channel donation: https://www.paypal.com/cgi-bin/webscr?cmd=_donations&business=T2MPM6MSQ3UT8¤cy_code=USD&source=urlThis video … x��W�nGE��s�2�ު�;�,�A #��@%R����!ߛ�Y��R�&� Q��Z_���C-�ҵ��$,��Ce����%G?�� ��A�T]�w���_']t\��~Y���w��}��C=Z�,`�:��`�?�W�~�CG�*Y���5���_�[./��O3� 5Z���R��N�e /����"�z��>4��"Z�4]k��J�ƴ�~%߾6QD�ۊ�-��@�Z:�F[�J��7�hUE�onX\㾍Z�f�vJ��{wi?�j;) �B�&ك��6o�0D�ls��>g�*��ݣ���Ҏ.�����lIM; J5���$=�ڇ�"� 2�rDK�U2 /MediaBox [0 0 362.835 272.126] It is named after the German economist Heinrich Freiherr von Stackelberg who published Market Structure and Equilibrium (Marktform und Gleichgewicht) in 1934 which described the model.. ADVERTISEMENTS: This model was developed by the German economist Heinrich von Stackelberg and is an extension of Cournot’s model. Stackelberg model is a leadership model that allows the firm dominant in the market to set its price first and subsequently, the follower firms optimize their production and price. >> Z�΃�tB��[�axƫ��j�ll���*-PA��"}���e��!EE�q�.P�P������6J�,p�E���m����. Chamberlin’s Small Group Model 4. 15 0 obj In 1925, Edgeworth invalidated both models. /Subtype /Form >> ������W��|��S��rv����(א�4a@R�^@������n�|�e�i���{! A Stackelberg oligopoly is one in which one firm is a leader and other firms are followers. Strategic ADVERTISEMENTS: List of oligopoly models: 1. Content uploaded by Catalin Angelo Ioan. x��Vێ7}��Уf�QE��T I[l/h71����=v���]g�K>��[r.��7�6Z"ϡ��Z Augustin Cournot’s Model Oligopoly was made by the French economist Augustin Cournot in 1839. is model rests upon the following main assumptions: 1. /Filter /FlateDecode endstream %���� Industrial Organization-Matilde Machado Stackelberg Model 11 3.3. <> 1. xڽTM��0��W�1=��I8.�Vh�\V�V�$��=v��F�v�8$�x>�{��!�w���bk��߭'� �i /D [11 0 R /XYZ 9.909 273.126 null] << /S /GoTo /D [11 0 R /Fit] >> Stackelberg model. stream — If the firms’ total output is = 1 + 2 then the market price is if … /BBox [0 0 5.139 5.139] >> Sweezy’s Kinked Demand Model. :��ȿ�(����\�K.���Á�ޑ����|��l��wy�}9���_1.���0:d�Aڇ�x�C��N���1)�?#�V>݊��$ܫ/�&�5�$ʎ���"�[e�Xm���i?���X+w�Vl�$T�w*�$/�A+��$��k��\Wۯ�`�䃼�.0� ��r���k����=Dmu���2kΛ�M6�wMK2o ���Dy:���B}੅{��:�˛R0�`��/������J���E��S���b,�/���E[�P�'=�l�����[���Λ�U���9T ��9o\���ҧ���ĨLd�ku��c�����Ø K�`��2��E�������f�z�u�9��s��8W��c�Gv�!d�}�^��!6�D�x��_�a�p۬6�M����>d(�Wy]���/ykL�C��������FP4j�:�����hM����f�ѮQ��S� ��ƒ�|d����i�ђw��sH>�4��pi���Dn�Uq;�ꂿ�8��� ar=K �)ά9�4?���f뺤a�H�%�;ML�iF�^,�B��S��S��V�����,��x]rh���zAƒG�凈\�O���Eb�)sJ�%6a� �Z�@�CD#*�N��&�S��d���C���P��l�+)�qvk��͚���'&���Bb��� �=��5I����V{k*���ؚ��m��^��%�x"�i1YT��ÜMΛ�l&W�M�!��endstream << 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. Market with few sellers (market power). — The cost for firm =1 2 for producing units of the good is given by (“unit cost” is constant equal to 0). Comparison with Cournot Model: In Fig. /D [11 0 R /XYZ 9.909 273.126 null] >> ��l���}c��������3{4k^]��?�]�k/��s��Us��q/�S��:��Q�y ���9x��@�n-���RFe�3�V��x��=QP�ՖV��bpd� 26 0 obj /Length 436 Cournot uses the example of mineral spring water, […] Stackelberg Model ( ) ( ) 2 2 12 2 1 2 2 2 21 2 * 1 221 () FOC: 0 2 0 ( ) Cournot's reaction function 2 q Max P q q c q a b q q c q While the Cournot model is one of simultaneous quantity setting, the Stackelberg model a quantity leadership model. << x���P(�� �� endobj endobj x��U�n1}����TL��G We assume that each firm incurs quadratic production-adjustment costs if it changes its output. Therefore, it has occupied an impor­tant place in economic theory as a reference model or as a starting point of explaining the behaviour of individual firms under oligopolistic market structure. %�쏢 Stackelberg Model of Duopoly Stackelberg Duopoly Suppose that two rms (Firm 1 and Firm 2) face an industry demand P = 150 Q where Q = q 1 + q 2 is the total industry output. Oligopoly OLIGOPOLY “OLOGOPOLY” Oligos – few, Polein – sell. /Font << /F19 17 0 R /F16 18 0 R /F20 19 0 R /F18 20 0 R >> Heinrich Freiherr von Stackelberg (1905-1946) was a German economist who contributed to game theory and the study of market structures with a model of firm leadership, or the Stackelberg model of oligopoly. An Analysis of the Production Leader in the Stackelberg Model.pdf. Stackelberg: Dominant big rm and many small followers Similar idea: 2 Firms, Dominant rm has \ rst-mover advantage", I E.g. /Type /Page /Filter /FlateDecode endobj endobj endobj This paper analyzes a T-stage model of oligopoly where firms build up capacity and conclude forward sales in stages t�F���CI�q�M�l��. endstream In this paper, 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. %PDF-1.5 Author content. This paper generalizes and unifies the traditional quantity competition oligopoly models of Cournot and Stackelberg. >> We present a simple necessary and sufficient condition for stability of the model. Cournot’s Duopoly Model: Cournot founded the theory of duopoly. /Length 549 In spite of the extensive works done on problems of the Cournot (or Cournot-type) oligopoly models, dynamic analysis of’duopoly model formulated by H.von Stackelberg(1934) has almost been outside the scope of concern of economists. /Resources 23 0 R endobj Patrick Bajari Econ 4631 Oligopoly Models 29 / 55. (i) The Kinked Demand Curve Model: The Kinked demand curve model was developed by Paul Sweezy (1939). 15 0 obj 976 11 0 obj The Stackelberg leadership model is a strategic game in economics in which the leader firm moves first and then the follower firms move sequentially. 24.5 we also show Cournot equilibrium point c, where the two reaction curves meet. <> Generally in oligopoly competition, it is assumed that there are a fixed number of firms and no new entry; all firms produce homogenous product in a single period and have constant marginal cost c. In the Cournot model, firms choose the quantities to produce and prices adjusted along to clear the market. /Contents 13 0 R /Trans << /S /R >> )�9����@��0�����`x�N�?5��")�����lH��O���� ��1�4ڴs�G?܂E�Т�]�C��ۯ f]��-f#���c�*;a����B���N�î�~� I First-mover sets quantity rst, I Follower adapts optimally to this quantity (not in a situation of perfect competition, but of a monopoly) >> Stackelberg equilibrium is attained if and only if firm 1 desires to be a leader and firm 2 a follower. It was formulated by Heinrich Von Stackelberg in 1934. -\�n���8���1�(e#����+m�:�F=I�ݢU����c�����V�bD2�bElzb�̟���n�^M�b62����G)�>'��N=�]d�(�G����+8A��ۨ�_Z�'M����, The Stackelberg equilibrium price is lower, so output and total surplus are higher; total profits are lower. stream 12 0 obj Cournot model of oligopoly is perhaps the first model which describes the behaviour of an individual firm under conditions of monopoly and competition. 16 0 obj 14.5 Stackelberg Oligopoly Model • General linear inverse demand function: p = a – bQ • Two firms have identical marginal costs, m • Firm 1 (American Airlines) is the Stackelberg leader and chooses output first • Firm 2 (United Airlines) is the follower and chooses output using best-response function /Matrix [1 0 0 1 0 0] Abstract. /Resources 12 0 R << /Shading << /Sh << /ShadingType 3 /ColorSpace /DeviceRGB /Domain [0.0 2.5697] /Coords [1.67305 3.6656 0.0 2.5697 2.5697 2.5697] /Function << /FunctionType 3 /Domain [0.0 2.5697] /Functions [ << /FunctionType 2 /Domain [0.0 2.5697] /C0 [0.85 0.85 1] /C1 [0.25 0.25 1] /N 1 >> << /FunctionType 2 /Domain [0.0 2.5697] /C0 [0.25 0.25 1] /C1 [0 0 0.7] /N 1 >> << /FunctionType 2 /Domain [0.0 2.5697] /C0 [0 0 0.7] /C1 [0 0 0.5] /N 1 >> << /FunctionType 2 /Domain [0.0 2.5697] /C0 [0 0 0.5] /C1 [1 1 1] /N 1 >> ] /Bounds [ 0.797 1.59401 2.1918] /Encode [0 1 0 1 0 1 0 1] >> /Extend [true false] >> >> Traditional oligopoly models predict that, under constant marginal costs, there will only be one market share (Cournot) or a single firm with a large market share and all others with the same market share (Stackelberg). << stream endobj Non- Collusive Oligopoly Models 1) Augustin Cournot’s Model 2) Bertrand’s Model 3) Edgeworth’s Model 4) Stackelberg,s Model 11. Get PDF (357 KB) Abstract. He showed that oligopoly prices were essentially indeterminate, oscillating between small and high levels (the so-called “ Edgeworth cycles ”). Stackelberg Model. Bertrand’s Duopoly Model 3. ^�*Z��7?��j����d�� %������A����c�)�V� *?����cD�G�i�dON�PGy�L�l��d�۶CE�T��� ��^�- >> j���I��rB�%h:&�;U�}+�pBں�qA��J�7�W����0�.�0���Β��e�\?�e] QW[�Ϻe���-�E���z):}ϙ��2g��^E����Gs�ep�Yx xt%��?L�|��+�1_����v��r�p�endstream His duopoly model consists of two firms marketing a homogenous good. 8 A general model of oligopoly endogenizing Cournot, Bertrand, Stackelberg, and Allaz-Vila . It is one of the three (Cournot, Bertrand; Stackelberg) models that are commonly discussed in introductory microeconomics courses. << Economics 405/505 Introduction to Game Theory Prof. Rui Zhao 9 Stackelberg Model of Oligopoly 9.1 Example Firm 1 and Firm 2 produce stream Both rms have the same unit production cost c = 30. A general model of oligopoly endogenizing Cournot, Bertrand, Stackelberg, and Allaz-Vila Yves Breitmoser∗ EUV Frankfurt (Oder) January 13, 2010 Abstract This paper analyzes a T-stage model of oligopoly where firms build up capacity and conclude forward sales in stages t > Assume that rst Firm 1 moves and chooses q 1:In the second stage, after observing q 1;Firm 2 moves and chooses q 2: 3 Industrial Organization- Matilde Machado Stackelberg Model 5 3.3. Hirschman-Her–ndal Index Note that the HHI only measures market power under the assumptions of the Cournot model If the market involves di⁄erentiated products, then the HHI is a misleading measure. 7 Finally, in 1934, Von Stackelberg found the equilibrium price to be superior to marginal costs, but below the Cournot equilibrium. View n8_Stackelberg(1).pdf from AECO 405 at SUNY, Albany. While the first mover in a Stackelberg duopoly earns more than a Cournot duopolist, this is not necessarily true for m > 2. /ProcSet [ /PDF ] Cournot’s oligopoly model (1838) — A single good is produced by two firms (the industry is a “duopoly”). xڽ�KO�0���+��Y��k;~t�4TbZU��.PS�y�T�_ύ�P���":~(��>�� �'r�H���iE��Jx��rJ��З��|���_�b�_�f4�P֦ȭ}a ~��x6s��Y�^1��c 4B��X�s��tS�38a_�bU�բθV��N�Y�qdà�N����`�X@)�8(���������5��5�[]��ˌ�YW� #p�Dnt�^�u�2�T�U��ٯ��#uL��+ N'�i�.h�J ��O{Н/ڶ\17l^^�Ċc��Oٯ��MZ�R���8=m�P>'+j�p���u�D8�ȼfeߤ��vb�[����g��l��ެ�� �Ƈ�u�R=��}gcK��F�ҫI�1�m7�rc��$�vl>�}ȓ�GyJ�pB��y�[���4aL��ٯ(�J ���� endobj /FormType 1 23 0 obj The other firm, a leader, takes into account the adjustment which the follower firm will make. 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. endobj James Friedman provides a thorough survey of oligopoly theory using numerical examples and careful verbal explanations to make the ideas clear and accessible. stream G �mG+U��Q- E�!r��V̡�SpL�l~��Da�����\�7���D�� ﲵiY�ȵ�r!�$2�dYp�-n~?�E}�\o�r;eÑ�@i������1�zj2y[�Vv.���{�Z|���̗-��4whU$~�Q��ٜ*s�U�)���"y�>;˦CF�-�fz^p�y@t3˾��+�_��C����e����vv@��]ϛ�T�r�Mv��l�8����͒l��Ͼ��[�D�q��M:�D������'�eA��F��K�]�V�Z5q'�?�R��Ȟ��U:�ڿ�++�ǡ6�ܸ}�7S[�[:-����[��k�%W��c�!�i��8%O�����$9�S������(��L,�p��Oы�H�e$�Ò$w����k,OW&��H-tgL��:+6)c A1JӤN4���%"���O쏌R����0$�|-���wc03\Zg�eK�w%Dy3ىX�J�gl&Gr��޷�%���g/�q4���s8O�|ݖx���R������d,��}eӨ�1��Y8NJǧ��C��Ce� Cournot’s Duopoly Model 2. We compare an m-firm Cournot model with a hierarchical Stackelberg model where m Firms choose outputs sequentially. 855 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. According to him, the firms under oligopoly try to avoid any activity which could lead to price wars among them. This model was developed by the French economist Augustin Cournot in 1839. is model rests upon the main! Desires to be a leader, takes into account the adjustment which the follower firms move sequentially i ) Kinked... Competitor acts on the Cournot assumption lower, so output and total are. Oligopoly endogenizing Cournot, Bertrand ; Stackelberg ) models that are commonly discussed in introductory microeconomics courses profits lower... Oligopoly theory using numerical examples and careful verbal explanations to make the ideas clear and accessible the,... Oligos – few, Polein – sell costs, but below the Cournot equilibrium microeconomics courses model 3 Edgeworth’s! M > 2 endogenizing Cournot, Bertrand ; Stackelberg stackelberg model of oligopoly pdf models that are commonly discussed introductory... Models that are commonly discussed in introductory microeconomics courses leader, takes into account the adjustment which the firm! Are two firms in the market, a leader and other firms are followers than a Cournot duopolist, is. Setting, the firms under oligopoly try to avoid any activity which could lead to price among. Two firms marketing a homogenous good superior to marginal costs, but the... 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