Leader and Two Followers
Three firms produce a homogeneous good with zero marginal cost and face inverse demand P = 120 − Q. Firm 1 first chooses its quantity q₁ publicly. Firms 2 and 3 then observe q₁ and choose q₂ and q₃ simultaneously. Everyone maximises profit and the leader anticipates the followers' behaviour (subgame-perfect equilibrium). What is the leader's profit?
Related problems & prerequisites
Worth solving first
- Stackelberg Leadership 5.0/10
- Selling Imperfect Substitutes 5.0/10
- How Many Firms Enter 5.0/10
Source: Original problem written for AxiomIQ, extending the Stackelberg model of 1934.