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Stackelberg Independence

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  • Toomas Hinnosaar

Abstract

The standard model of sequential capacity choices is the Stackelberg quantity leadership model with linear demand. I show that under the standard assumptions, leaders’ actions are informative about market conditions and independent of leaders’ beliefs about the arrivals of followers. However, this Stackelberg independence property relies on all standard assumptions being satisfied. It fails to hold whenever the demand function is non-linear, marginal cost is not constant, goods are differentiated, firms are non-identical, or there are any externalities. I show that small deviations from the linear demand assumption may make the leaders’ choices completely uninformative.

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  • Toomas Hinnosaar, 2019. "Stackelberg Independence," Carlo Alberto Notebooks 585, Collegio Carlo Alberto.
    • Handle: RePEc:cca:wpaper:585
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    References listed on IDEAS

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    1. Hiroaki Ino & Toshihiro Matsumura, 2012. "How Many Firms Should Be Leaders? Beneficial Concentration Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1323-1340, November.
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    Cited by:

    1. Troncoso-Valverde, Cristián & Chávez-Bustamante, Felipe, 2024. "Do you want to know a secret? Strategic alliances and competition in product markets," European Journal of Operational Research, Elsevier, vol. 313(3), pages 1180-1190.
    2. Hinnosaar, Toomas, 2024. "Optimal sequential contests," Theoretical Economics, Econometric Society, vol. 19(1), January.

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    More about this item

    Keywords

    sequential games; oligopolies; Stackelberg leadership model.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • 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

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