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The Stackelberg equilibrium as a consistent conjectural equilibrium

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  • Ludovic A. Julien

    ()
    (LEG, Université de Bourgogne)

  • Olivier Musy

    ()
    (EconomiX, Université Paris Ouest-Nanterre La Défense)

  • Aurélien W. Saidi

    ()
    (Information & Operations Management Department, ESCP Europe)

Abstract

We consider a static game with conjectural variations where some firms make conjectures while others do not. Two propositions are proved. We first show that there exists a continuum of conjectural variations such that the conjectural equilibrium locally coincides with the Stackelberg equilibrium (Proposition 1). Second, we define the conditions under which a conjectural equilibrium is a locally consistent equilibrium (i.e. such that conjectures are fulfilled). The concept of (local) consistency is restricted to firms making conjectures. Two conditions on consistency are featured: consistency within a cohort and consistency among cohorts. The Stackelberg equilibrium fulfills only the latter condition (Proposition 2). An example is provided.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 1 ()
Pages: 938-949

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Handle: RePEc:ebl:ecbull:eb-10-00656

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Keywords: Consistent conjectural variations; reaction functions; Stackelberg competition;

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  1. Damme, E.E.C. van & Hurkens, J.P.M., 1996. "Endogenous Stackelberg Leadership," Discussion Paper, Tilburg University, Center for Economic Research 1996-115, Tilburg University, Center for Economic Research.
  2. FIGUIÈRES, Charles & TIDBALL, Mabel & JEAN-MARIE, Alain, . "On the effects of conjectures in a symmetric strategic setting," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1687, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Martin K. Perry, 1982. "Oligopoly and Consistent Conjectural Variations," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 13(1), pages 197-205, Spring.
  4. Friedman, James W. & Mezzetti, Claudio, 2002. "Bounded rationality, dynamic oligopoly, and conjectural variations," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 49(3), pages 287-306, November.
  5. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
  6. Bresnahan, Timothy F, 1981. "Duopoly Models with Consistent Conjectures," American Economic Review, American Economic Association, American Economic Association, vol. 71(5), pages 934-45, December.
  7. Morton I. Kamien & Nancy L. Schwartz, 1983. "Conjectural Variations," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 16(2), pages 191-211, May.
  8. Ulph, David, 1983. "Rational conjectures in the theory of oligopoly," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 1(2), pages 131-154, June.
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