Comparison on the Efficiency of Cournot and Stackelberg Competition

Danqing HUANG, School of Antai Economics and Management, Shanghai Jiao Tong University

Content

1.      Case of Duopoly (two competing firms) 2

1.1 Cournot Competition. 2

1.2 Stackelberg Competition. 2

1.3 Duopoly Comparison. 3

1.3.1 Mathematical Derivation. 4

1.3.2 Logical reasoning. 4

2.      Case of Multi-oligopolies (many competing firms) 4

2.1 Cournot Competition. 5

2.2 Stackelberg Competition. 5

2.3 Multi-oligopolies Comparison. 6

Abstract

This paper aims to conduct a comparison between Cournot and Stackelberg Competition. Part 1 considers the case of duopoly and concludes that under the condition given Stackelberg Competition is more efficient than Cournot Competition. Then the paper explores the possible reason behind this phenomenon with both mathematical and logical approach. Part 2 extend the study into a more general Multi-oligopolies model. The key findings include: (1) When the number of companies N≥3, the efficiency of Cournot Competition outstrips that of Stackelberg Competition and the gap is enlarged as N increases. (2) The growth rate of the difference line sharply goes down and the difference line eventually levels off. (3) When N→∞, the aggregate output in a Cournot model tends to be twice as that in a Stackelberg Model.