Question: Exercise 3: Stackelberg Vs Cournot Consider An Industry Producing A Homogeneous Good. In other words, Cournot equilibrium is when firms choose sequential, and Stackelberg is when firms choose equilibrium simultaneously. You decide on quantity and the market (typically and organized exchange) determine the price. Stackelberg equilibrium is attained if and only if firm 1 desires to be a leader and firm 2 a follower. The difference between Cournot and Stackelberg equilibrium is that Cournot equilibrium is chosen in a way that each firm maximizes their profit. 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. E.g. While the Cournot model is one of simultaneous quantity setting, the Stackelberg model a quantity leadership model. Proposes a model which shows that Stackelberg competition is not necessarily welfareâ enhancing compared with Cournot competition. Abstract. We implement both a random matching and a ï¬xed-pairs version for each market. Similarly, the follower in the Stackelberg model produces less output than that in the Cournot model. Cournot is quantity competition. 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. ADVERTISEMENTS: This model was developed by the German economist Heinrich von Stackelberg and is an extension of Cournotâs model. Industrial Organization-Matilde Machado Stackelberg Model 15 3.3. It is assumed, by von Stackelberg, that one duopolist is sufficiently sophisticated to recognise that his competitor acts on the Cournot assumption. We compare an m-firm Cournot model with a hierarchical Stackelberg model where m Firms choose outputs sequentially. 24.5 we also show Cournot equilibrium point c, where the two reaction curves meet. 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. Understanding the Stackelberg Graphically. The Stackelberg equilibrium price is lower, so output and total surplus are higher; total profits are lower. Market Demand Is Given By P(Q) = 200 â Q Where As Usual Q = 91 +92. Stackelberg is one firms chosing price or quanity before other. Comparison with Cournot Model: In Fig. While the first mover in a Stackelberg duopoly earns more than a Cournot duopolist, this is not necessarily true for m > 2. 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 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 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. Let QÄ± Be The Output For Firm 1 And 22 The Output For Firm 2. 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