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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. Federico Etro, 2008. "Stackelberg Competition with Endogenous Entry," Economic Journal, Royal Economic Society, vol. 118(532), pages 1670-1697, October.
    2. 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 331-352, May.
    3. 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.
    4. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006.
    5. 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.
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    Cited by:

    1. 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).
    2. Cumbul, Eray, 2021. "Stackelberg versus Cournot oligopoly with private information," International Journal of Industrial Organization, Elsevier, vol. 74(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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