Question

Compare the duopoly outcomes under the Cournot and Stackelberg games. How do the two firms compete? Are the decisions simultaneous or sequential? In which game are profits higher? Which game is more efficient–i.e. leads to a higher quantity and a lower price–when the two firms have the same cost functions?

Answer 1

In both models: Stackelberg and Cournots, firms compete on basis of output. In in other words, in both models output is basis for competition. But in Cournot model, firms tend to move simultaneously while under the Stackelberg model, firms move sequentially. First, leader moves, then follower follows the suit.

Since one firm recognises the interdependence in Stackelberg model, thus total output in this Model tends to be larger than one that prevails in Cournot model where firms do not recognise interdependence.

Further, price in Stackelberg Model is higher than Cournot. Thus, profits in Cournot are higher than Stackelberg.