Strategic Choice of Quantity Stickiness and Stackelberg Leadership

Midori Hirokawa and Dan Sasaki

Bulletin of Economic Research, 2001, vol. 53, issue 1, 19-34

Abstract: This paper re-examines endogenous Stackelberg leader-follower relations by modelling an explicitly dynamic market. We analyze a twice-repeated duopoly where, in the beginning, each firm chooses either a quantity-sticky production mode or a quantity-flexible production mode. The size of the market becomes observable after the first period. In the second period, a firm can adjust its quantity if and only if it has adopted the flexible mode. Hence, if one firm chooses the sticky mode whilst the other chooses the flexible mode, then they respectively play the roles of a Stackelberg leader and a Stackelberg follower in the second marketing period. Somewhat intriguing is the finding that such a Stackelberg-like equilibrium can arise only when the relative weight of the pre-Stackelberg first marketing period is sufficiently high, with time preferences being sufficiently strong. Copyright 2001 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 2001
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