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Do Followers Really Matter in Stackelberg Competition?

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  • Ludovic Julien
  • Olivier Musy
  • Aurélien Saïdi

Abstract

In this paper, we consider a T-stage linear model of Stackelberg oligopoly. First, we show geometrically and analytically that under the two conditions of linear market demand and identical constant marginal costs, the T-stage Stackelberg model reduces to a model where T oligopolies exploit residual demand sequentially. At any stage, leaders behave as if followers did not matter. Second, we study social welfare and convergence toward competitive equilibrium. Especially, we consider the velocity of convergence as the number of firms increases. The convergence is faster when reallocating firms from the most to the less populated cohort until equalizing the size of all cohorts.

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File URL: http://aprendeenlinea.udea.edu.co/revistas/index.php/lecturasdeeconomia/article/view/11474/10470
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Bibliographic Info

Article provided by Universidad de Antioquia, Departamento de Economía in its journal LECTURAS DE ECONOMÍA.

Volume (Year): (2011)
Issue (Month): 75 ()
Pages: 11-27

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Handle: RePEc:lde:journl:y:2011:i:75:p:11-27

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Web page: http://economia.udea.edu.co
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Postal: Lecturas de Economía, Departamento de Economía, Calle 67, 53-108, Medellin 050010, Colombia.

Related research

Keywords: leader's markup discount ratio; linear economy; follower's output index; generalized Stackelberg competition;

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  1. Ludovic Julien & Olivier Musy & Aurélien Saïdi, 2012. "On hierarchical competition in oligopoly," Journal of Economics, Springer, vol. 107(3), pages 217-237, November.
  2. John S. Heywood & Matthew McGinty, 2007. "Mergers among leaders and mergers among followers," Economics Bulletin, AccessEcon, vol. 12(12), pages 1-7.
  3. Federico Etro, 2007. "Stackelberg competition with endogenous entry," Working Papers 121, University of Milano-Bicocca, Department of Economics, revised 2007.
  4. Boyer, Marcel & Moreaux, Michel, 1986. "Perfect competition as the limit of a hierarchical market game," Economics Letters, Elsevier, vol. 22(2-3), pages 115-118.
  5. Richard Watt, 2002. "A Generalized Oligopoly Model," Metroeconomica, Wiley Blackwell, vol. 53(1), pages 46-55, 02.
  6. John S. Heywood & Matthew McGinty, 2008. "Leading and Merging: Convex Costs, Stackelberg, and the Merger Paradox," Southern Economic Journal, Southern Economic Association, vol. 74(3), pages 879-893, January.
  7. Ludovic A. Julien & Olivier Musy, 2011. "A Generalized Oligopoly Model With Conjectural Variations," Metroeconomica, Wiley Blackwell, vol. 62(3), pages 411-433, 07.
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