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Do followers really matter in Stackelberg competition?

  • Ludovic A. Julien
  • Olivier Musy
  • Aurélien W. Saïdi

In this note, we consider a generalized T−stage Stackelberg oligopoly. We provide a proof and an interpretation that under the two necessary and sufficient conditions of linear aggregate demand and identical constant marginal costs, followers do not matter for leaders. Leaders act as rational myopic agents, voluntarily ignoring the number of followers and remaining stages, thereby behaving as Cournotian oligopolists. Strategies of incumbent firms are invariant to entry of new cohorts. Their profits can be studied by the way of two discount factors: the first impacting markup and the second impacting output supply. Some implications in terms of welfare and convergence toward competitive equilibrium are derived.

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File URL: http://economix.fr/pdf/dt/2011/WP_EcoX_2011-10.pdf
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Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2011-10.

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Length: 17 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:drm:wpaper:2011-10
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  1. John S. Heywood & Matthew McGinty, 2007. "Mergers among leaders and mergers among followers," Economics Bulletin, AccessEcon, vol. 12(12), pages 1-7.
  2. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, March.
  3. AMIR, Rabah & GRILO, Isabel, . "Stackelberg versus Cournot equilibrium," CORE Discussion Papers RP 1368, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Ludovic A. Julien & Olivier Musy & Aurélien Saïdi, 2012. "On hierarchical competition in oligopoly," Post-Print hal-01385836, HAL.
  5. Richard Watt, 2002. "A Generalized Oligopoly Model," Metroeconomica, Wiley Blackwell, vol. 53(1), pages 46-55, 02.
  6. 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.
  7. Ludovic Julien & Olivier Musy, 2011. "A generalized oligopoly model with conjectural variations," Post-Print halshs-01228015, HAL.
  8. Federico Etro, 2007. "Stackelberg competition with endogenous entry," Working Papers 121, University of Milano-Bicocca, Department of Economics, revised 2007.
  9. Daughety, Andrew F, 1990. "Beneficial Concentration," American Economic Review, American Economic Association, vol. 80(5), pages 1231-37, December.
  10. Pal, Debashis & Sarkar, Jyotirmoy, 2001. "A Stackelberg Oligopoly with Nonidentical Firms," Bulletin of Economic Research, Wiley Blackwell, vol. 53(2), pages 127-34, April.
  11. 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.
  12. Anderson, Simon P. & Engers, Maxim, 1992. "Stackelberg versus Cournot oligopoly equilibrium," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 127-135, March.
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