An Analysis of the Production Leader in the Stackelberg Model

Author:Catalin Angelo Ioan, Gina Ioan
Pages:113-118
SUMMARY

The paper analyzes the situation of a duopoly in which each competitor does not have complete information about the role assumed by the other

 
FREE EXCERPT
ISSN: 2067 9211 Performance and Risks in the European Economy
113
Performance and Risks in the European Economy
An Analysis of the Production Leader in the Stackelberg Model
Cătălin Angelo Ioan1, Gina Ioan2
Abstract: The paper analyzes the situation of a duopoly in which each competitor does not have complete
information about the role assumed by the other.
Keywords: leader; satellite; Stackelberg
JEL Classification: E17; E27
1. Introduction
Oligopole represents the situation of a market where there is a small number of bidders (at least two)
of a non-substitutable good and a sufficiently large number of consumers. Oligopole composed of two
producers is called duopoly.
Considering two competing companies A and B that produce the same normal good, we propose to
analyze each of them in response to the activity of the other firm.
Each of them when determining their production level and selling price will consider the production
and price of the other. If one of the two companies first establishes the price or the quantity produced,
the other one adjusting for it, then it will be called the price leader, respectively the production leader,
the second firm called the price satellite or the production satellite.
2. The Analysis
Companies A and B have incomplete information about each other. They will consider the other firm
as a production leader or satellite.
Consider for the beginning that the company A is considered to be leader of quantity. If it produces QA
good units, then B, considered by A as a satellite, will adjust its output after A producing QB=f(QA)
units of good. The sales price is dependent on the total quantity of products placed on the market. So
let's say: p=p(QA+QB) the price per unit of product.
1 Associate Professor, PhD, Danubius University of Galati, Department of Economics, Address: 3 Galati Blvd., Galati
800654, Romania, Tel.: +40372361102, E-mail: catalin_angelo_ioan@univ-danubius.ro.
2 Senior Lecturer, PhD, Danubius University of Galati, Department of E conomics, Address: 3 Galati Blvd., Galati 800654,
Romania, Tel.: +40372361102, E-mail: ginaioan@univ-danubius.ro.

To continue reading

REQUEST YOUR TRIAL