Question
In a duopoly with identical marginal costs, how does the total industry output in a Stackelberg equilibrium compare to a Cournot equilibrium?
Solution
In Cournot, firms move simultaneously and are cautious. In Stackelberg, one firm (the leader) moves first and aggressively commits to a large production volume. The follower is then forced to scale back. Overall, the leader's extra aggression outweighs the follower's reduction, leading to a higher total output and a lower market price than the simultaneous Cournot case.
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