Stackelberg oligopoly

Stackelberg game - An illustration with two firms Assume two firms with zero marginal costs and total output

. Inverse demand is given by

where

and

are given and can be adjusted by the student. The example illustrates the various market outcomes depending on which game is played:

Stackelberg game with firm 1 (producing ) being the Stackelberg leader and firm 2 its follower (producing )
Cournot-Nash game producing a stable oligopoly
Collusion

You may manipulate

and

if you like as well as the profit levels

. Take care not to change the value of

as this would spoil the Stackelberg point. www.s-e-i.ch

Confirm that the profit isoquants represent higher profits the closer they are to the abscissa (the axis). Provide an intutuition.
Compare the profits of firms 1 and two in case of collusion and in the Stackelberg game. Interpret your findings.

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