Question

Which of the following is an example of Stackelberg competition?

Select one:

a. Firestone offers consumer rebates to keep its tire prices below Goodyear's.

b. A price war between American Airlines and United Airlines leads to both airlines setting ticket prices equal to marginal cost.

c. Natura Pet Products introduced the first grain-free dog food; eventually, other dog food companies entered this market but had to limit their production plans, given Natura Pet Products' sizeable market share.

d. GlaxoSmithKline and Pfizer compete in the HIV drug market by annually announcing their production quotas during the second week of January.

Answer 1

c) Natura Pet Products introduced the first grain-free dog food; eventually, other dog food companies entered this market but had to limit their production plans, given Natura Pet Products' sizeable market share.  

In this type of competition firstly the leader firm moves and then the other firms move following a logical order. The firm that moves first gets a crucial advantage. The leader firm sets the price and the follower firms then determine their optimal production by using the former's price. The leader firm has significantly the large market share and thus having the dominant position.