The Stackelberg Model for a Leader of Production and Many Satellites

• Author: Catalin Angelo Ioan, Gina Ioan
• Pages: 369-373

Performance and Risks in the European Economy

369

The Stackelberg Model for a Leader

of Production and Many Satellites

Catalin Angelo Ioan1, Gina Ioan2

Abstract: Oligopoly is a market situation where there are a small number of bidders (at least two) of a good

non-substituent and a sufficient number of consu mers. The paper analyses the Stackelberg model for a leader

of production and many satellites. There are obtained the equilibrium productions, maximum profits and sales

price where one of the company is th e leader of quan tity, and other satellites. There are also survey the

situations where the firm based on its marginal cost of production can effectively take the lead of production.

Keywords: oligopoly; Stackelberg; equilibrium

JEL Classification: D43

1 Introduction

Oligopoly is a market situation where there are a small number of bidders (at least two) of a good non-

substituent and a sufficient number of consumers. Oligopoly composed of two producers called

duopoly.

Considering any number of competing firms producing the same normal good, is interesting t he analysis of

each activity in response to the activity of other companies.

Each of them when it sets the production and the sale price will be considered the productions and prices

of other firms. If one of the companies will settle the price or the quantity produced, the other adjusting

after it, then the price will be called leader of price or leader of production, the others called price

satellites or production satellites.

2 The Stackelberg Model for a Leader of Production and Many Satellites

Consider now m firms Fi, i=

m,1

, a function of price: p(Q)=a-bQ, a,b0 and the total cost of

production TCi=iQ, i=

m,1

, where i is the marginal cost of firm Fi.

1 Associate Professor, PhD, ―Danubius‖ University of Galati, Romania, Address: 3 Galati Boulevard, 800 654 Galati,

Romania, Tel.: +40.372.361.102, fax: +40.372.361.290, Corresponding author: catalin_angelo_ioan@univ-danubius.ro.

2 Assistant professor, PhD, ―Danubius‖ University of Galati, Romania, Address: 3 Galati Boulevard, 800654 Galati,

Romania, Tel.: +40.372.361.102, fax: +40.372.361.290, E-mail: ginaioan@univ-danubius.ro.