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What Is the Stackelberg Model? The Stackelberg model is a leadership model that allows the firm dominant to set its price first. Subsequently, the follower firms optimize their production and cost. It was formulated by Heinrich Von Stackelberg in 1934.

The standard assumptions are (1) linear demand, and (2) constant marginal costs, (3) identical firms producing a homogeneous product. Under these assumptions, there is a simple relationship between the competitive quantity and leaders' choices.

Stackelberg competition describes an oligopoly market model based on a non-cooperative strategic game where one firm (the ?leader?) moves first and decides how much to produce, while all other firms (the ?followers?) decide how much to produce afterwards.

If the leader has already played Stackelberg, the best response of the follower is to play Stackelberg (and therefore it is the only action that yields a Nash equilibrium in this subgame).

(a)For the Stackelberg model where one firm is the leader and other makes decisions based on the leading firm, the most prominent example can be Apple Co. which introduced many new products in the market like iPods, iPads and other products.

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. In this paper, a duopoly market with isoelastic demand function and linear production cost is considered.

The Cournot model is a model of oligopoly in which firms produce a homogeneous good, assuming that the competitor's output is fixed when deciding how much to produce. A numerical example of the Cournot model follows, where it is assumed that there are two identical firms (a duopoly), with output given by Qi (i=1,2).

Stackelberg competition describes an oligopoly market model based on a non-cooperative strategic game where one firm (the ?leader?) moves first and decides how much to produce, while all other firms (the ?followers?) decide how much to produce afterwards.