Under the Stackelberg assumptions, the Cournot solution is achieved if each desires to act as a follower, knowing that the other will also act as a follower. The Stackelberg consumer surplus is greater than the Cournot consumer surplus, but lower than the Bertrand consumer surplus. price for each consumer it sells to. Using the "1 2×base ×height formula for a triangle with height a−ps=1 4a+ 3 4c−c =3 4(a−c)we get CS = 9 32 (a−c)2 b . Optimal trade policy and welfare in a differentiated ... Stackelberg duopoly, also called Stackelberg competition, is a model of imperfect competition based on a non-cooperative game. Leave a Reply Cancel reply. It follows that prices are lower in the Stackelberg case, and thus consumer's surplus is higher. Based on a three-stage stackelberg dynamic game analysis, this paper constructs a product quality control strategy model for three types of distribution channels (direct channel, retail channel and mixed channel) in a three-echelon supply chain, which is composed of one manufacturer, one retailer and the final customer. and consumer surplus is 2 1(2)(1 ) 12 218 CS Q pc cc, and aggregate welfare is thus the sum of aggregate profits and consumer surplus, WCScc c . The difference between Cournot and Stackelberg equilibrium is that Cournot equilibrium is chosen in a way that each firm maximizes their profit. Stackelberg Competition $2,134.22. Consumer surplus is less in monopoly, but producer surplus is greater. This obscures the fact that expenditure, pQ, can be eliminated from the expression for welfare to obtain the simpler form given in (7) from which the results follow naturally. We link together the following results: merging parties™pro-ts fall but consumer surplus is unchanged, Stackelberg leadership raises welfare, monopolistic competition is the market structure with the highest surplus. (PDF) Public Stackelberg Leadership in a Mixed Oligopoly ... Based on this information, the consumer surplus in this market is: The Stackelberg game is adopted to solve the problem between the retailer and the manufacturer. $16.33. The price of the printer is alpha times the aftermarket consumer surplus, where alpha is between zero and one. Based on this information, the consumer surplus in this market is: b. The Stackelberg consumer surplus is greater than the Cournot consumer surplus, but lower than the Bertrand consumer surplus. Motta [7] analyzed two versions of a vertical product differentiation model, one with fixed and the other with variable costs of quality. The total output and consumer surplus of Stackelberg is higher than the total output and consumer surplus of Cournot. The reason there are more than one model of oligopoly is that the interaction . The Stackelberg price is lower than the pure monopoly or cartel price, but greater than the . this maximizes consumer surplus. In a home-leading Stackelberg duopoly, increasing tariffs decreases consumer surplus but improves the home country's social welfare. In the second part of Chapter 1, I also extend the analyses of Gal-Or (1987) and Shinkai (2000) on last-mover advantage to the above n-firm Stackelberg oligopoly set-up. Downloadable (with restrictions)! In the Stackelberg case, rather than having to solve an algebraic equation where Q1 is 'floating' (uncertain and expressed as a formula related to what firm 1 produces), Q2 is simply expressed as a formula where Q1 is a known quantity. Denotes the expected consumer surplus on the market under scenario Ω. Subscript: Denotes the remanufacturer . In Stackelberg equilibria the problem is even more crucial since the profitability of leadership or followership, consumers' surplus and social surplus can critically depend upon the kind of strategy, price or quantity, and the sort of cross-relation between the goods. If the firms' prices are different, consumers buy everything from the low-price firm, … and nothing from the high-price firm. Also to know is, what is one difference between the Cournot and Stackelberg models? B. In that way, firm 1 can 'force' firm 2 to produce their 'optimal' quantity given that firm 1 has put a stake . Pennsylvania is the monopoly retailer of wine in that state. The Stackelberg consumer surplus is greater than the Cournot consumer surplus, but lower than the Bertrand consumer surplus. Page 2 of 16 Pages So, Firm 1's best response to q2 or Firm 1's reaction function is: 2 120 2 1 2 q q R q − = = (1) Since the profit- maximization problem faced by the two firms are symmetric in this This dissertation includes two papers about issues in two-sided markets and one paper discussing hierarchical Stackelberg model. SOLUTIONS: the Stackelberg model assumes one firm learns the reaction curve of the other firm and acts as leader. It is assumed, by von Stackelberg, that one duopolist is sufficiently sophisticated to recognise that his competitor acts on the Cournot assumption. (7) Since3 16< It builds from Matsumura's duopoly Cournot model (1998) by comparing Cournot and Stackelberg models. 13. Consumer surplus and total welfare are CSB = 1 2 (1 p)S ) = 1 2 1 1 2 S 1 1 2 = S 8 and W B =CS + ˇ 3S 8 k. (c)Firms set quantities (or prices, it is equivalent) so as to jointly maximize their pro ts (cartel). Stackelberg Competition. The inverse demand for a homogeneous-product Stackelberg duopoly is P= 20;000 5Q. D) Calculate the total producer surplus (PS), total consumer surplus (CS), and total surplus (TS=PS+CS) in the above three instances. Ω, respectively, denotes the monopoly, Nash-Cournot, and Stackelberg-Cournot model. Downloadable! Consider two firms competing to sell a homogeneous product by setting price. In a Cournot duopoly, firms make their moves at the same time while in Stackelberg duopoly, one firm becomes the leader and so make the first move, followed by the other firm. The expected value model . It was developed in 1934 by Heinrich Stackelbelrg in his "Market Structure and Equilibrium" and represented a breaking point in the study of market structure, particularly the analysis of duopolies, since it was a model based on different starting assumptions and . We compare an n-firm Cournot model with a Stackelberg model, where n-firms choose outputs sequentially, in a stochastic demand environment with private information. Based on this information, we can conclude . Is Stackelberg more profitable than Cournot? The Stackelberg consumer surplus is greater than the Cournot consumer surplus, but lower than the Bertrand consumer surplus. The expected total output, consumer surplus, and total surplus are lower, while expected price and total profits are higher in the Stackelberg perfect revealing equilibrium than in the Cournot . The Stackelberg price is lower than the pure monopoly or cartel price, but greater than the . The inverse market demand curve is given P =280 −2(X +Y), where X is the quantity of Firm 1, and Y is the quantity of Firm 2. In this video we explain what Consumer Surplus is, how you can calculate Consumer Surplus, and what it looks like on a Supply and Demand graph.This channel . 10 Moreover, our results hold regardless of how (symmetrically) noisy the private demand signals of firms are. These rankings are the opposite of the rankings of prices, total output, surplus, and profits under perfect information. The aggregate Stackelberg output is greater than pure monopoly or cartel, but less than the perfectly competitive output. Domestic social surplus S is the sum of consumer surplus and profits of firm 2, and is given by . and logit) implies that consumer surplus depends on the aggregate alone, and that the Bertrand pricing game is aggregative. The optimum-welfare tariff of a home-leading Stackelberg duopoly cannot exceed that of the foreign-leading Stackelberg duopoly. Formally, consumers maximize Z Q 0 (D(p)−p)dq0 = Z Q 0 ((9−q0)−(9−Q))dq0 = £ Qq0 −q02/2 ¤Q 0 = Q2 −Q2/2=Q2/2, which isincerasing in total quantity produced. The firm should charge the max fee based on the amount of consumer surplus in the market associated with the competitive price, which is given by CS = (1/2)(100 - 20)8 = 320. Based on this information, consumer surplus in this market is. If the firms' prices are the same, consumers buy half . It was developed in 1934 by Heinrich Stackelbelrg in his "Market Structure and Equilibrium" and represented a breaking point in the study of market structure, particularly the analysis of duopolies, since it was a model based on different starting assumptions and . D. $2,704.80. This paper studies how to design a distribution channel strategy and . Not all the consumer surplus lost from monopoly goes 'wasted'. The original equipment manufacturer, firm 1, captures via its foremarket price some fraction of the aftermarket consumer surplus, where that surplus is generated by consumption of its own and its competitor's aftermarket products. The increase in consumer surplus comes about because of both lower prices and higher quantities produced. Otherwise, the model will reduce to Cournot if the follower does not observe the quantity chosen by the leader. The assumptions used here seem to be the most general for which the . The other firm, firm 2, only operates in the . The Stackelberg price is lower than the Cournot price, but greater than the Bertrand price. In contrast, in the Stackelberg case, the incumbents sufficiently produce to reduces the number of entrants, and thus, the welfare-improving effect of stimulating the incumbent firms' production using a higher entry barrier is weak. Market demand is given by P(Q) = 200 - Q where as usual Q = 91 +92. Chapter 1 analyzes endogenous horizontal product differentiation in a two-sided market with two platforms based on a two-stage Hotelling model. The analytical results demonstrate that: airline price dis-crimination will increase social welfare and reduce consumer surplus, both airfare and airline profit increase as the degree of price . Put simply, the merger raises consumer surplus only if the price falls; thus consumer surplus rises only when 500 + ⅓*c < 525, or c < 75. Total surplus is less in monopoly. (Total quantity demanded is constant and independent of price.) Stackelberg duopoly, also called Stackelberg competition, is a model of imperfect competition based on a non-cooperative game. The firms' marginal costs are identical and are given by MCi = 2. The solution of the Stackelberg game defines the Pareto front that characterizes fundamental trade-offs between retail . If 2y 2/9 < R < 9y 2/32 then, while it may be worthwhile regulating the industry under the assumption that it is a Cournot duopoly, it is unprofitable to regulate the same industry if it is assumed that it is a Stackelberg duopoly. However, it is reasonable to assume that each firm decides what actions to take, and when to take them. $73.50. Otherwise, one must change his pattern of behaviour and act as a leader before equilibrium can be attained. In conclusion, consumer surplus is the same but welfare is higher under Stackelberg competition with endogenous entry: Proposition 3. $1,067.11. The Stackelberg consumer surplus is greater than the Cournot consumer surplus, but lower than the Bertrand consumer surplus. Oligopoly Models. Firm 1 has MC 1 (Q 1) = 2 and firm 2 has MC 2 (Q 2) = 2. Based on this information consumer surplus in this market is 2,134.22 Consider a Stackelberg duopoly with the following inverse demand function: P = 100 - 2Q1- 2Q2.The firms' marginal cost are identical and given by MCi(Qi) = 2Qi. The aggregate Stackelberg output is greater than pure monopoly or cartel, but less than the perfectly competitive output. The aggregate Stackelberg output is greater than pure monopoly or cartel, but less than the perfectly competitive output. Reference [14] studied the Cournot model in a fuzzy environment, obtained the optimal . The pro ts are equal Pro ts= Producer Surplus - Fixed Costs Pro ts= (140 20) 60 2 5 = 3595: 4. The cost structures for the leader and the follower, respectively, are C L(Q L) = 3;000Q L and C F (Q F) = 4;000Q F. a. 140; while the last customer pays 20. 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