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Do followers really matter in Stackelberg competition?

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  • Ludovic A. Julien
  • Olivier Musy
  • Aurélien W. Saïdi

Abstract

In this note, we consider a generalized T−stage Stackelberg oligopoly. We provide a proof and an interpretation that under the two necessary and sufficient conditions of linear aggregate demand and identical constant marginal costs, followers do not matter for leaders. Leaders act as rational myopic agents, voluntarily ignoring the number of followers and remaining stages, thereby behaving as Cournotian oligopolists. Strategies of incumbent firms are invariant to entry of new cohorts. Their profits can be studied by the way of two discount factors: the first impacting markup and the second impacting output supply. Some implications in terms of welfare and convergence toward competitive equilibrium are derived.

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  • Ludovic A. Julien & Olivier Musy & Aurélien W. Saïdi, 2011. "Do followers really matter in Stackelberg competition?," EconomiX Working Papers 2011-10, University of Paris Nanterre, EconomiX.
    • Handle: RePEc:drm:wpaper:2011-10
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    References listed on IDEAS

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    1. Hanif D. Sherali, 1984. "A Multiple Leader Stackelberg Model and Analysis," Operations Research, INFORMS, vol. 32(2), pages 390-404, April.
    2. Ludovic Julien & Olivier Musy & Aurélien Saïdi, 2012. "On hierarchical competition in oligopoly," Journal of Economics, Springer, vol. 107(3), pages 217-237, November.
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    Cited by:

    1. Toomas Hinnosaar, 2021. "Stackelberg Independence," Journal of Industrial Economics, Wiley Blackwell, vol. 69(1), pages 214-238, March.

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    More about this item

    Keywords

    Leader’s markup discount factor; linear economy; follower’s output discount factor; myopic behavior;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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