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The Stackelberg–Armstrong model

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  • Sanchez-Cartas, J. Manuel

Abstract

We show that sequential (Stackelberg) competition between two-sided platforms can overturn the price-skewness ranking of the Armstrong (2006) competition benchmark: the side subsidized under simultaneous pricing may become the taxed side under sequential play. The mechanism is that the Stackelberg leader internalizes cross-side feedback through the follower’s best response, which introduces both externalities into each side’s markup and can reverse which side is subsidized. The equilibrium is unique, admits closed-form solutions under standard interiority/concavity conditions, and is directly comparable to Armstrong’s benchmark. Both platforms earn strictly more than under simultaneous play, and we characterize a sharp threshold separating second-mover from first-mover advantage.

Suggested Citation

  • Sanchez-Cartas, J. Manuel, 2026. "The Stackelberg–Armstrong model," Economics Letters, Elsevier, vol. 265(C).
    • Handle: RePEc:eee:ecolet:v:265:y:2026:i:c:s0165176526002132
    DOI: 10.1016/j.econlet.2026.113019
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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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