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The Stackelberg Oligopoly model, developed by Heinrich von Stackelberg, is a strategic framework in economics that defines the interaction between a market-leading 'Stackelberg leader' and subsequent 'Stackelberg followers.' It contrasts with the Cournot model by incorporating a sequential decision-making process, where the leader firm's output influences the followers' production choices, affecting market equilibrium and competition.
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The Stackelberg Oligopoly Model is a framework that illustrates the strategic decision-making process of firms in certain markets
Heinrich von Stackelberg
The Stackelberg Oligopoly Model was developed by Heinrich von Stackelberg
The Stackelberg Oligopoly Model characterizes a market structure where a leading firm, known as the 'Stackelberg leader,' strategically sets its output level before other firms, known as 'Stackelberg followers.'
The Stackelberg leader is the firm that benefits from the strategic advantage of setting its output first in the market
The Stackelberg followers are the firms that must base their production decisions on the output established by the leader
Reaction functions are crucial in the Stackelberg Oligopoly Model as they reveal how the followers will adapt to varying levels of output from the leader
The Cournot Model is an analytical tool for examining oligopolistic competition that assumes firms choose their outputs simultaneously and independently
Decision-Making Process
The Stackelberg Model incorporates a hierarchical decision-making process, while the Cournot Model assumes simultaneous and independent decision-making
Equilibrium Concepts
The Stackelberg Model has a leader-follower equilibrium, while the Cournot Model has a Nash Equilibrium
The Stackelberg Model leads to different expressions of market power and equilibrium outcomes compared to the Cournot Model
A methodical approach is necessary to solve a Stackelberg Oligopoly problem, combining mathematical analysis with strategic insight
Identifying Leader and Follower Firms
The first step in solving a Stackelberg Oligopoly problem is to identify the leader and follower firms within the given market context
Deriving Reaction Functions
Reaction functions are derived by differentiating the follower firms' profit functions with respect to their output
Maximizing Profit Function
The leader firm maximizes its profit function, taking into account the followers' reactions, to determine its optimal output level
Determining Equilibrium Outputs
The equilibrium outputs for all firms involved are determined once the leader has made its move and the followers have adjusted their outputs accordingly
The leader firm in the Stackelberg Oligopoly Model can benefit from increased market power, strategic production planning, and potentially higher profits
Follower Firms
Follower firms may experience diminished profits and a reduced drive for innovation in the Stackelberg Oligopoly Model
Consumers
Consumers may face higher prices and less product diversity in the Stackelberg Oligopoly Model
The concentration of market power in the Stackelberg Oligopoly Model can lead to potential inefficiencies in resource allocation and adverse effects on social welfare
00
Heinrich von ______ developed a market structure model where a dominant firm sets its production level before others.
Stackelberg
01
In the Stackelberg model, the '______ leader' uses its initial move to maximize profits by anticipating other firms' responses.
Stackelberg
02
Stackelberg Oligopoly Leader's Strategic Advantage
Leader sets output first, influencing market to its benefit.
