Stackelberg Leadership in a Dynamic Duopoly with Capital Accumulation
I propose a dynamic duopoly model where firms enter simultaneously but compete hierarchically à la Stackelberg at each instant over time. They accumulate capacity through costly investment, as in Solow’s (1956) growth model. The leader invests more than the followers as a result, in steady state the leader’s capacity and profits are larger than the follower`s. Therefore, the present analysis does not confirm Gibrat`s Law, since the individual growth rate is determined by the timing of moves.
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