Is Stackelberg a Nash equilibrium?
Is Stackelberg a Nash equilibrium?
If the leader has already played Stackelberg, the best response of the follower is to play Stackelberg (and therefore it is the only action that yields a Nash equilibrium in this subgame). Hence the strategy profile – which is Cournot – is not subgame perfect.
What does a firm’s reaction function demonstrate?
It is a reaction function since it describes what Firm One’s reaction will be given the output level of Firm Two. This equation represents the strategic interactions between the two firms, as changes in Firm Two’s output level will result in changes in Firm One’s response.
Does Stackelberg have first mover advantage?
In Stackelberg games, being able to act first is an advantage in certain situations and a disadvantage in others. In a Stackelberg game, the firms make decisions sequentially rather than simultaneously. The second mover observes the choice of the first mover and chooses its best action accordingly.
Is Stackelberg a game of imperfect information?
Stackelberg is a model of imperfect competition based on a non-cooperative game. In game theory, a Stackelberg model is a sequential game in which there are two firms, which sell homogeneous products, and are subject to the same demand and cost functions.
Is Stackelberg equilibrium Pareto efficient?
The perfect equilibrium of the game is the Stackelberg equilibrium. The Nash equilibrium is not Pareto efficient (isoprofit curves, green curves, are not tangent to each other) and therefore, there is a loss in economic efficiency. Nevertheless, the loss is lower in the Stackelberg duopoly than in Cournot’s.
Why is Stackelberg more efficient than Cournot?
Stackelberg markets yield, regardless of the matching scheme, higher outputs than Cournot markets and, thus, higher efficiency. For Cournot markets, we replicate a pattern known from previous experiments. There is stable equilibrium play under random matching and partial collusion under fixed pairs.
What type of market is Stackelberg?
leadership model
Stackelberg model is a leadership model that allows the firm dominant in the market to set its price first and subsequently, the follower firms optimize their production and price. It was formulated by Heinrich Von Stackelberg in 1934. In simple words, let us assume a market with three players – A, B, and C.
What is a reaction function economics?
A reaction curve RC, also called reaction function or best-reply function, is the locus of optimal, i.e. profit-maximizing, actions that a firm may undertake for any given action chosen by a rival firm.
What is the Stackelberg model and how to solve it?
Holding excess capacity is another means of commitment. The Stackelberg model can be solved to find the subgame perfect Nash equilibrium or equilibria (SPNE), i.e. the strategy profile that serves best each player, given the strategies of the other player and that entails every player playing in a Nash equilibrium in every subgame .
What is the result of a Stackelberg disequilibrium?
As a result a Stackelberg disequilibrium situation is created. Stackelberg believed that this disequilibrium situation is encountered more often than not. So it is not possible to produce the final result of a Stackelberg disequilibrium on a priori basis. If Stackelberg was correct.
Can a follower play a Stackelberg leader action?
Indeed, if the ‘follower’ could commit to a Stackelberg leader action and the ‘leader’ knew this, the leader’s best response would be to play a Stackelberg follower action. Firms may engage in Stackelberg competition if one has some sort of advantage enabling it to move first.
How can firms engage in Stackelberg competition?
Firms may engage in Stackelberg competition if one has some sort of advantage enabling it to move first. More generally, the leader must have commitment power. Moving observably first is the most obvious means of commitment: once the leader has made its move, it cannot undo it – it is committed to that action.
