Stackelberg and Cournot competition under equilibrium limit pricing

Abstract

In this paper we show that the claim that the price in a Stackelberg model is lower than the price in a Cournot model, does not necessarily hold in an entry-deterrence framework. Using a signaling model of entry deterrence, we show that when post-entry competition is Stackelberg instead of Cournot, this might in uence the entry decision of a potential entrant in such a way that expected average price can actually be higher under Stackelberg competition. In a simple framework with linear demand and constant marginal costs, we derive the condition under which this holds.