Consider the Stackelberg duopoly model with firm choosing quantity first; firm observes and then sets . The Nash (subgame-perfect) equilibrium outcome of this game is a pair of quantities such that
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2 marks, −0.666666666666667MicroeconomicsMonopolistic competition and oligopolyStackelberg and sequential competitionModerateabout 3 min
DSE 2017 Question 11: Monopolistic competition and oligopoly
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Consider the Stackelberg duopoly model with firm 1 choosing quantity x₁ first; firm 2 observes x₁ and then sets x₂. The Nash (subgame-perfect) equilibrium outcome of this game is a pair of quantities (x₁,x₂) such that (A) isoprofit curves of firms 1 and 2 are tangential at (x₁,x₂) (B) an isoprofit curve of firm 1 is tangential to the best response curve of firm 2 at (x₁,x₂) (C) an isoprofit curve of firm 2 is tangential to the best response curve of firm 1 at (x₁,x₂) (D) none of the above
Also written as: Consider the Stackelberg duopoly model with firm 1 choosing quantity x_1 first; firm 2 observes x_1 and then sets x_2. The Nash (subgame-perfect) equilibrium outcome of this game is a pair of quantities (x_1,x_2) such that
Monopolistic competition and oligopoly has come up 104 times in 7 exams since 2004.
What this question tests
This question is on Stackelberg and sequential competition, part of Monopolistic competition and oligopoly in Microeconomics.
A leader moving first and a follower reacting, in quantities or prices.
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