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Business Questions

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Lecturer's Name

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Are prices in Stackelberg competition higher or lower compared to Bertrand

competition? Why?

Oligopolies compete based on quantity or price in an oligopolistic market. Price

competition may be more prevalent in a proper economy than quantity competition. People

are familiar with the Cournot model, one of the most popular quantity game models, in which

all players (firms) are given unrealistic expectations. At the moment, the entirely rational

capacity oligopolistic game has been extensively studied, and a player can select

their anticipation rule from three different preconceptions: gullible, constrained rational, and

accommodative (Shi et al., 2014). Many linear and nonlinear demand functions and linear

and nonlinear cost functions have been studied in duopoly quantity games with homogeneous

or heterogeneous players. Various researchers have also investigated a variety of triopoly

quantity game models. Dichotomy and chaos have been found in these investigations'

oligopolistic market quantity model theory.

Every company will aim to lower the price of its product until it is retailing at a loss in

the Bertrand model. This is known as the Bertrand paradox. On the other hand, the Bertrand

paradox is exceptionally unusual in everyday life. The lack of a completely homogeneous

product is one of the main factors. Allowing companies to sell differentiated products is one

way to get around the paradox. They Study duopoly and Triopoly cost game methods with

diverse products and services similarly to quantity competitive rivalry. Every player in the

one-short game simultaneously sets their quantity or pricing of the amount as mentioned

earlier and price models (Shi et al., 2014). However, dynamic or sequential games are pretty

standard in the actual world. There is a famous sequential game known as the Stackelberg

game, in which the leader firm publicly commits to a strategy, followed by the other firms

(the followers) who watch the leadership's decision and make their own choices.

Stackelberg's game model was a quantity game with a homogeneous product. Afterwards, it
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was broadened to include differentiated products in the quantity and pricing game. The lower

the Stackelberg equilibrium price, the more output and total surplus, but the smaller the

overall profits. In contrast to a pure monopoly or cartel price, the Stackelberg price is lower

and higher than the utterly competitive price (Chen et al., 2021).

Give at least two examples where firms compete in Stackelberg fashion

The first scenario got evaluated by the Macan Turbo, A winner. It is no wonder. With

a top speed of over 178 mph, the Porsche Macan Turbo is the fastest two-seater in its class.

And the quality of its performance comes as no surprise given its Porsche pedigree from stem

to stern. For instance, many of its components are shared with the acclaimed 911 Carrera S

sports car: the same 3.6-litre capacity flat engine and turbocharging technology, the same

door handles and locking mechanism, and even the same chassis and suspension. One will

also find some features that make everyday driving more straightforward, such as Porsche

Traction Management (PTM), which optimizes handling in slippery conditions by adjusting

the distribution of drive torque between the front and rear axles. Bi-Xenon headlights provide

high-end lighting technology with four individual light sources and a 24-volt anti-theft alarm

system with interior monitoring to protect the vehicle when it is unattended.

The second example is where you live in a mid-sized metropolitan region and

subscribe to cable TV, internet and landline service. You are not entirely satisfied with your

current cable provider (CTC) because of their high price and poor customer service, but you

have not yet decided to switch to one of the other competitors in the market. The Cable

company has a 40 per cent market share. It competes with a cellular company that serves

mobile phone needs, Digital wireless that provides landline and mobile services, and an

online movie/TV show provider (OV), offering more competitive prices than CTC. The

Internet Service Provider (ISP) also competes for your television, cell phone and movie/TV

show entertainment demands. All of these firms operate in institutional and technological
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environments, including regulatory bodies, technology infrastructure such as fibre optic cable

on city streets and satellites in the sky for the TV, landline and movies/TV shows providers;

including corporate holdings by large conglomerates which control many firms operating in

the same industry or allied industries.

References
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Chen, J., Wei, Z., Liu, J., & Zheng, X. (2021). Technology Sharing and Competitiveness in a

Stackelberg Model. Journal of Competitiveness, 13(3), 5–20.

https://doi.org/10.7441/joc.2021.03.01

Shi, L., Le, Y., & Sheng, Z. (2014). Analysis of Price Stackelberg Duopoly Game with

Bounded Rationality. Discrete Dynamics in Nature and Society, 2014, 1–8.

https://doi.org/10.1155/2014/428568