Stackelberg Competition, explained.
Stackelberg competition is a sequential quantity game where a leader commits output before a follower chooses its best response. Credible commitment changes the strategic calculation.
Why it happens
The leader anticipates follower output of max(0, (80−leader)/2). A larger leader commitment partly displaces follower output. Under these demand and cost assumptions, the leader maximises profit at 40 and the follower responds with 20; the order of decisions changes the simultaneous benchmark.
Stackelberg competition is a sequential quantity game. A credible first mover can anticipate the follower's best response when choosing its own quantity.
Read the result
Move the commitment slider and observe the follower's calculated response. Submit to make the commitment explicit. The follower is an optimiser under a known equation, not a simulated person. Compare the displayed profits with the simultaneous Cournot benchmark before concluding that the sequence helped both firms.
A worked example
Committing forty units before a follower
With unit cost 20 and price 100−total output, the leader commits 40 units.
The follower's best response is (80−40)/2=20, making total output 60 and market price 40.
The leader earns 800 and the follower 400 tokens. The simultaneous benchmark gives about 711.11 to each, so the leader's advantage is accompanied by a lower follower payoff.
OPTIONAL DEEPER DETAILGo deeper: inside the model
Inside this model
Price is max(0, 100 − leader − follower), both unit costs are 20, and the follower chooses max(0, (80 − leader)/2). The leader's optimum is 40, followed by 20. The comparison shows the continuous simultaneous Cournot outcome of 80/3 each.
Where this idea is useful
A practical use
A capacity commitment can change a rival's subsequent choice when it cannot cheaply be reversed.
A common misconception
“The first mover always wins more in a strategic interaction.”
The advantage here depends on a credible quantity commitment, known demand, constant costs, and the follower's response. Other games and reversible announcements can produce different outcomes.
What this explanation leaves out
- The commitment is enforced in this game. Actual firms may revise capacity, differentiate products, or face uncertainty. Moving first is not universally an advantage.
Why not simply choose the largest possible commitment?
Excess output lowers the price and eventually destroys margin. Anticipating a follower response improves the leader's decision, but it does not remove the demand constraint.
What makes a commitment in your situation credible rather than an announcement that can easily be reversed?
Associated thinkers
Associations marked provisional are awaiting source review.
Further reading
Explore the original research or the teaching reference behind this experiment.