What is the Stackelberg equilibrium?

Models such as the Cournot, Bertrand, and Stackelberg are used to explain the quantities produced by oligopolies. There are several models to explain the output produced by oligopolies because the interactions between various firms are complex based on the similarity of products delivered, the market share, and whether firms' competition is based on output produced or the prices charged.

Stackelberg model.

This model applies where one firm leads and the other follows. It applies where;

• The firms deal with similar products.
• Firms competition is based on the output produced.
• The output produced is decided sequentially.

Since the leader has a more significant market share, they have the advantage of a first mover. All the other firms must set their prices based on the output level chosen by the leader. The leading firm makes higher profits as compared to the other firms.

A Stackelberg equilibrium gives the output choices of the players in the oligopoly market with sequential moves.