Stackelberg Duopoly:
Two firms both have the same constant marginal cost of $20 ≥ 0 and zero fixed cost; market price P = 140 − 2(q1 + q2). Both firms choose outputs to compete.
(a) Find the subgame perfect equilibrium outcome of the Stackelberg Duopoly game with Firm 1 moving first. First, solve for the follower’s (Firm 2’s) best response function. Then solve for the leader’s optimal strategy.
(b) Find the Nash equilibrium of the Cournot duopoly under the same assumptions on costs and demand.
(c) Compare the two equilibria. Discuss the differences.