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Welfare-Improving Effect of a Small Number of Followers in a Stackelberg Model

Author

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  • Ino Hiroaki

    (School of Economics, Kwansei Gakuin University, 1–155 Uegahara Ichiban-cho, Nishinomiya, Hyogo 662–8501, Japan)

  • Matsumura Toshihiro

    (Institute of Social Science, The University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo 113–0033, Japan)

Abstract

We investigate a Stackelberg oligopoly model in which m leaders and N−m$N - m$ followers compete. We find an important welfare effect that relates to anti-monopoly policies when we move from the Cournot model (m=N$m = N$) to the Stackelberg model: Exchanging a small number of Cournot firms for Stackelberg followers always improves welfare under moderate conditions. This contrasts with the welfare effect that can reduce welfare when a small number of Cournot firms are exchanged for Stackelberg leaders. The key result behind this asymmetry is the contrasting limit results in the cases where m converges to N and m converges to 0. We also discuss the optimal number of leaders and the integer constraint for the number of firms.

Suggested Citation

  • Ino Hiroaki & Matsumura Toshihiro, 2016. "Welfare-Improving Effect of a Small Number of Followers in a Stackelberg Model," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(1), pages 243-265, January.
    • Handle: RePEc:bpj:bejtec:v:16:y:2016:i:1:p:243-265:n:14
    DOI: 10.1515/bejte-2015-0045
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    References listed on IDEAS

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    1. Breitmoser, Yves, 2012. "On the endogeneity of Cournot, Bertrand, and Stackelberg competition in oligopolies," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 16-29.
    2. Federico Etro, 2008. "Stackelberg Competition with Endogenous Entry," Economic Journal, Royal Economic Society, vol. 118(532), pages 1670-1697, October.
    3. Hiroaki Ino & Tomohiko Kawamori, 2009. "Oligopoly with a large number of competitors: asymmetric limit result," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 39(2), pages 353-353, May.
    4. Junichiro Ishida & Toshihiro Matsumura & Noriaki Matsushima, 2011. "Market Competition, R&D And Firm Profits In Asymmetric Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 59(3), pages 484-505, September.
    5. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006.
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    Cited by:

    1. Cumbul, Eray, 2021. "Stackelberg versus Cournot oligopoly with private information," International Journal of Industrial Organization, Elsevier, vol. 74(C).
    2. Wang, Leonard F.S. & Zeng, Chenhang & Zhang, Qidi, 2019. "Indirect taxation and consumer welfare in an asymmetric Stackelberg oligopoly," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    multiple leaders; Stackelberg; Cournot; limit result; convex cost;
    All these keywords.

    JEL classification:

    • 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
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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