The Stackelberg Model is a strategic game in economics that describes a market scenario where firms compete on output levels. In this model, one firm, known as the leader, makes its production decision first, while the other firm, called the follower, observes this decision and then chooses its own output level. This sequential decision-making process leads to a situation where the leader can potentially secure a competitive advantage by committing to a certain output level before the follower does.
The model is characterized by the following key elements:
Mathematically, if is the output of the leader and is the output of the follower, the total market output is , where the follower's output can be expressed as a reaction function . The Stackelberg Model highlights the importance of strategic commitment in oligopolistic markets.
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