Stackelberg Independence

Hinnosaar, Toomas

Abstract

The standard model of sequential capacity choices is the Stackelberg quantity leadership model with linear demand. I show that under the standard assumptions, leaders' actions are informative about market conditions and independent of lead-ers' beliefs about the arrivals of followers. However, this Stackelberg independence property relies on all standard assumptions being satisfied. It fails to hold whenever the demand function is non-linear, marginal cost is not constant, goods are differentiated, firms are non-identical, or there are any externalities. I show that small deviations from the linear demand assumption may make the leaders' choices completely uninformative.

Citation

Hinnosaar, T. (2021). Stackelberg Independence. Journal of Industrial Economics, 69(1), 214-238. https://doi.org/10.1111/joie.12244

• Journal Article Type: Article
• Acceptance Date: Jun 11, 2020
• Online Publication Date: Jul 17, 2020
• Publication Date: 2021-03
• Deposit Date: Jun 24, 2020
• Publicly Available Date: Jul 18, 2021
• Journal: Journal of Industrial Economics
• Print ISSN: 0022-1821
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 69
• Issue: 1
• Pages: 214-238
• DOI: https://doi.org/10.1111/joie.12244
• Keywords: sequential games; oligopolies; Stackelberg leadership model
• Public URL: https://nottingham-repository.worktribe.com/output/4706198
• Publisher URL: https://onlinelibrary.wiley.com/doi/full/10.1111/joie.12244