February 2016
Beginner to intermediate
500 pages
33h 40m
English
We derive the Stackelberg duopoly equilibrium for a general linear inverse demand function, [&p|=|a|-|bQ|=|a|-|b(q_{1}|+|q_{2}),&] where the two firms produce identical products, have identical marginal costs, m, and have no fixed costs. This is the same demand and cost structure as in Appendix 11A for the Cournot model.
Firm 1, the Stackelberg leader, chooses its output first. After observing the output [&q_{1}&] that the leader chooses, the follower chooses its output [&q_{2}&] using its best-response function, which is given by Equation 11A.4 in Appendix 11A for two firms [&(n|=|2):&]
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