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Can leadership in the Stackleberg model of duopoly ever produce lower profit than the equilibrium profit...

Can leadership in the Stackleberg model of duopoly ever produce lower profit than the equilibrium profit level of a duopolist in the Cournot model? Explain. ?

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Answer #1

In Cournot model, Both firms assume that rival firm would continue to stick to old strategy. Hence, both firms do not learn from past experience.

On other hand, in case of Stackelberg Model, leader firm takes into account the output decision of follower. Thus, reaction of follower is rationally included in output decision of leader firm. Therefore, leader firm produce more and earn profits which is larger than follower and cournot firms.

Stackelberg firm earns profit which is larger than Equilibrium profit level of a duopolist in Cournot Model.

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