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Stackelberg-Nash Equilibrium and Perfect Competition in the Solow-Uzawa Growth Model

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  • Wei-Bin Zhang

    (Ritsumeikan Asia Pacific University)

Abstract

This study introduces Stackelberg-Nash equilibrium to neoclassical growth theory. It attempts to make neoclassical economic growth theory more robust in modelling the complexity of market structures. The model is constructed within the framework of the Solow-Uzawa two-sector model. The economy is composed of two sectors. The final goods sector is the same as in the Solow one-sector growth model which is characterized by perfect competition. The consumer goods sector is the same as the consumer goods sector in the Uzawa model but is characterized by Stackelberg duopoly. We model household behavior with Zhang’s concept of disposable income and utility. The model endogenously determines profits of duopoly which are equally distributed among the homogeneous population. We build the model and then identify the existence of an equilibrium point through simulation. We conduct comparative static analyses of some parameters. We also compare the economic performance of the traditional Uzawa model and the model with the Stackelberg-Nash equilibrium. We conclude that the imperfect competition increases national output, national wealth, and utility level in comparison to perfect competition

Suggested Citation

  • Wei-Bin Zhang, 2022. "Stackelberg-Nash Equilibrium and Perfect Competition in the Solow-Uzawa Growth Model," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 96, pages 315-343, January-J.
    • Handle: RePEc:lde:journl:y:2022:i:96:p:315-343
    DOI: 10.17533/udea.le.n96a342588
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    1. H. Uzawa, 1971. "On a Two-Sector Model of Economic Growth," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 3, pages 19-26, Palgrave Macmillan.
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    6. Wei-Bin Zhang, 2020. "The General Economic Theory," Springer Books, Springer, number 978-3-030-56204-5, September.
    7. Behrens, Kristian & Murata, Yasusada, 2009. "City size and the Henry George Theorem under monopolistic competition," Journal of Urban Economics, Elsevier, vol. 65(2), pages 228-235, March.
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    More about this item

    Keywords

    Stackelberg competition; leader and follower; perfect competition; capital accumulation; Solow model; Uzawa model; profit.;
    All these keywords.

    JEL classification:

    • 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
    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General

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