In the Stackelberg model,
A)each firm takes the quantities produced by its rivals as given.
B)each firm takes the prices charged by its rivals as given.
C)one firm plays a leadership role and its rivals merely react to the leader's quantity.
D)prices are higher and quantities are slightly less than we would see if the firms colluded to achieve the monopoly outcome.

Question

Quizplus · Accepted Answer

In the Stackelberg model, one firm (the leader) sets its quantity or price first, and the other firms (the followers) then choose their quantity or price in response. This implies that the leader has a strategic advantage and can influence market outcomes, while the followers merely react to the leader's actions. Therefore, choice C is correct. Choices A and B describe the Cournot model, where firms choose their quantities simultaneously, taking those of their rivals as given. Choice D is incorrect because in the Stackelberg model, prices tend to be lower and quantities tend to be higher than in a monopoly outcome.

In the Stackelberg Model