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Stackelberg Independence

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  • Toomas Hinnosaar

Abstract

The standard model of sequential capacity choices is the Stackelberg quantity leadership model with linear demand. I show that under the standard assumptions, leaders’ actions are informative about market conditions and independent of leaders’ beliefs about the arrivals of followers. However, this Stackelberg independence property relies on all standard assumptions’ being satisfied. It fails to hold whenever the demand function is non‐linear, marginal cost is not constant, goods are differentiated, firms are non‐identical, or there are any externalities. I show that small deviations from the linear demand assumption may make the leaders’ choices completely uninformative.

Suggested Citation

  • Toomas Hinnosaar, 2021. "Stackelberg Independence," Journal of Industrial Economics, Wiley Blackwell, vol. 69(1), pages 214-238, March.
    • Handle: RePEc:bla:jindec:v:69:y:2021:i:1:p:214-238
    DOI: 10.1111/joie.12244
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    References listed on IDEAS

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    1. Hinnosaar, Toomas, 2024. "Optimal sequential contests," Theoretical Economics, Econometric Society, vol. 19(1), January.

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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