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| Consider a market in which we have two firms, one of which will act as the Stackelberg leader and the other as the follower. As we know, this means that each firm will choose a quantity, X (for the leader) and Y (for the follower). Imagine that you have determined the Stackelberg equilibrium for a particular linear demand curve and set of marginal costs. indicate how X and Y would change if we then “perturbed” the initial situation in the following way: a) The leader’s marginal cost goes down, but the follower’s marginal cost stays the same. b) The follower’s marginal cost goes down, but the leader’s marginal cost stays the same. |
